The Concept of Strategy – Chapter 1
Strategy Definition
Mintzberg (1978) distinguished between
- Intended Strategy
o As conceived by the top management team (outcome of negotiation,
bargaining and compromise)
- Realized strategy
o Actual strategy that is implemented
o Only 10-30% of intended strategy is realized
- Emergent strategy
o Shift of intended strategy to adapt to the changing external environment
Honda managers (Honda B case) made almost every conceivable mistake until they found
the right formula à emergent approach to strategy: adaptation and learning through
continuous interaction between strategy formulation and implementation, constantly
being adjusted and revised.
For Google, strategic planning will inevitably be restricted to a few principles and
guidelines; the rest must emerge as circumstance unfold (flux and transformation
organism). As the business environment becomes more turbulent and less predictable, so
strategy making becomes more concerned with guidelines and less with specific
decisions.
Porter (1994)
- Essence of strategy is choice
- Firm’s strategy defines its configuration of activities and how they interrelate
- Competitive advantage results from firm’s ability to perform the required
activities at a lower cost or in a unique way (differentiated) that creates buyer
value
o à Resulting from the firm’s ability to perform better than competitors
o à C.A. can only be achieved if a business system creates superior value
for buyers
Strategy has to fit the internal and external environment of the firms, with the fundamental
role of strategy being the deployment of its resources to satisfy long-terms goals, given
that conditions in the competitive environment are expected to change
History of Strategy
Many of the concepts and theories of business strategy come, historically, from military
strategy. The term ‘strategy’ derives from the Greek word ‘strategia’, meaning
1
,‘generalship’. However, the concept of strategy did not originate with the Greek. Sun
Tzu’s classic The Art of War, written in about 500BC, is regarded as the first mention on
strategy.
àStrategy has been forced to evolve to cope with the increasingly fast changing and
volatile environment, making inflexible long-term plans redundant (Grant, 2015)
• 1950s and 1960s, as a result of company’s growth, in size and complexity.
Corporate planning developed to provide a long-term direction document in order
to set goals, objectives and priorities, operational budgeting, key economic trends
and capital expenditure allocation. No difference was acknowledge between
intended strategy and realised strategy, since the business world is assumed to be
predictable
• Around the 1970s and 1980s, as a result of competitive environmental instability,
firms could no longer plan 3 to 5 years ahead à leading to strategic management:
focusing on competition and how to achieve a competitive advantage (competitive
positioning), as the primary goal strategy
• During the 1990s, the focus of strategy analysis shifted from sources of profit in
the external environment to the sources of profit within the firm (Resource-based
view), as the main competitive advantage and strategic focus: How different are
we from competitors and design strategies to exploit these differences – emphasis
on resources and capabilities
• In the 21 century, strategy has evolved to ‘strategy as direction’, in order to be
st
able to adapt to turbulences
What is strategy today?
- Objective appraisal of resources
o Acknowledgement of strengths and weaknesses
o Jeff Bezos’s leadership of Amazon has exploited his talent as a business,
by having a vision on how technical, logistical and merchandising should
be managed. Attributes include persistence and ruthlessness
o Stretch and resource leverage à Southwest Airlines resource scarcity
leading to ambition, innovation and ‘success against all odds’ culture
- Profound understanding of the competitive environment
o Having the capability to observe and act when timing is right
- Simple, consistent, long-term goals
o “We must learn how to be the CEO of our own career” Drucker
Hence, viewing strategy as forming a link between the firm (goals and values; resources
and capabilities, structure and systems) and its external environment (competitors,
customers, suppliers) à strategic fit
2
, • For strategy to be successful it has to be consistent with the firms internal
and external environment
o General Motors long-term decline is a consequence of a strategy
that has failed to break away from its long-established ideas and
adapt to the changing market for cars
àWhat roles does strategy perform?
- Strategy as decision support
- Strategy as coordinating device
- Strategy as target (achieving long-term goals)
- Strategy as animation and orientation
- Strategy not primarily focused on profits, but in creating value and be able to adapt
along the way
à Strategy can be identified:
- Mission statements
o Google: To organize the world’s information and make it universally
accessible and useful
- A statement of principles
- Vision statement
- Strategy statement
à Some basic elements of good strategy (Rumelt, 2011)
- Understanding of environment and competitors (diagnosis of challenge)
- Guiding policy
- A set of coherent actions
à Strategy a focus on the present (positioning à market scope, geographical scope,
vertical scope, defining competitive advantage) and in preparing for the future (direction
à vision and mission statement, performance goals, R&D, growth models: organic
growth, M&A, alliances)
Strategy / Tactic
Ø Strategy is choice and is the overall plan for deploying resources to establish a
favourable position, whereas, a tactic is a scheme for a specific action (Grant &
Jordan, 2015) – TACTICS make you win the battle / STRATEGY makes you win
the war.
A key level for Amazon to derive sales growth was to remove shipping charges. During
2000 and 2001 holiday season, Amazon started offering shipping free of charge. This was
considered a tactical measure, since they could be introduced and withdrawn at any time.
On the other hand, Amazon Prime, introduced 2005, was a strategic initiative, charging a
3
, fee to cover 12 months of free express delivery, making a commitment for a year.
Consequently, Amazon Prime members had a huge incentive to maximise purchases,
forcing Amazon to rise merchandise supply to cover demand (strategy)
Corporate Strategy / Business Strategy
à Levels of strategy follow business level strategy (competitive advantage) à corporate
level strategy (corporate configuration) à network level (inter-firm relations)
à Corporate strategy (where to compete): industry or markets (Investment
diversification, vertical integration, acquisition and new ventures, allocation of resources,
divestments)
• Apple
o Diversification
§ Distinct capabilities and standardized products, allowing some
degree of personalisation (iMac, iPhone. iPod. iPad, Apple Watch,
Apple TV), whereas running on the same operating system
§ Pricing (through economies of scale and outsourcing of
manufacturing to China) à strategic allies
• Intel processors
Business strategy (how to compete): concerned with how the firm competes within a
particular industry or markets to gain a competitive advantage
• Apple
o Differentiation
§ Design quality (simplicity)
§ Positioned itself in the high-end market (reputation for creating
highly valued products for customers)
§ Distribution (established retail stores around the world, superior
delivery)
§ Bar for technical support within stores)
§ Dedicated customer service
(Hambrick, 1980)
There is no ideal way of operationalizing the strategy construct, therefore, discusses
alternative ways of operationalizing strategy for business level-strategy
• Textual Descriptions
o Minzberg (1977)
o Viewing strategy as a situational art that can best be studied through in-
depth case studies
4
Strategy Definition
Mintzberg (1978) distinguished between
- Intended Strategy
o As conceived by the top management team (outcome of negotiation,
bargaining and compromise)
- Realized strategy
o Actual strategy that is implemented
o Only 10-30% of intended strategy is realized
- Emergent strategy
o Shift of intended strategy to adapt to the changing external environment
Honda managers (Honda B case) made almost every conceivable mistake until they found
the right formula à emergent approach to strategy: adaptation and learning through
continuous interaction between strategy formulation and implementation, constantly
being adjusted and revised.
For Google, strategic planning will inevitably be restricted to a few principles and
guidelines; the rest must emerge as circumstance unfold (flux and transformation
organism). As the business environment becomes more turbulent and less predictable, so
strategy making becomes more concerned with guidelines and less with specific
decisions.
Porter (1994)
- Essence of strategy is choice
- Firm’s strategy defines its configuration of activities and how they interrelate
- Competitive advantage results from firm’s ability to perform the required
activities at a lower cost or in a unique way (differentiated) that creates buyer
value
o à Resulting from the firm’s ability to perform better than competitors
o à C.A. can only be achieved if a business system creates superior value
for buyers
Strategy has to fit the internal and external environment of the firms, with the fundamental
role of strategy being the deployment of its resources to satisfy long-terms goals, given
that conditions in the competitive environment are expected to change
History of Strategy
Many of the concepts and theories of business strategy come, historically, from military
strategy. The term ‘strategy’ derives from the Greek word ‘strategia’, meaning
1
,‘generalship’. However, the concept of strategy did not originate with the Greek. Sun
Tzu’s classic The Art of War, written in about 500BC, is regarded as the first mention on
strategy.
àStrategy has been forced to evolve to cope with the increasingly fast changing and
volatile environment, making inflexible long-term plans redundant (Grant, 2015)
• 1950s and 1960s, as a result of company’s growth, in size and complexity.
Corporate planning developed to provide a long-term direction document in order
to set goals, objectives and priorities, operational budgeting, key economic trends
and capital expenditure allocation. No difference was acknowledge between
intended strategy and realised strategy, since the business world is assumed to be
predictable
• Around the 1970s and 1980s, as a result of competitive environmental instability,
firms could no longer plan 3 to 5 years ahead à leading to strategic management:
focusing on competition and how to achieve a competitive advantage (competitive
positioning), as the primary goal strategy
• During the 1990s, the focus of strategy analysis shifted from sources of profit in
the external environment to the sources of profit within the firm (Resource-based
view), as the main competitive advantage and strategic focus: How different are
we from competitors and design strategies to exploit these differences – emphasis
on resources and capabilities
• In the 21 century, strategy has evolved to ‘strategy as direction’, in order to be
st
able to adapt to turbulences
What is strategy today?
- Objective appraisal of resources
o Acknowledgement of strengths and weaknesses
o Jeff Bezos’s leadership of Amazon has exploited his talent as a business,
by having a vision on how technical, logistical and merchandising should
be managed. Attributes include persistence and ruthlessness
o Stretch and resource leverage à Southwest Airlines resource scarcity
leading to ambition, innovation and ‘success against all odds’ culture
- Profound understanding of the competitive environment
o Having the capability to observe and act when timing is right
- Simple, consistent, long-term goals
o “We must learn how to be the CEO of our own career” Drucker
Hence, viewing strategy as forming a link between the firm (goals and values; resources
and capabilities, structure and systems) and its external environment (competitors,
customers, suppliers) à strategic fit
2
, • For strategy to be successful it has to be consistent with the firms internal
and external environment
o General Motors long-term decline is a consequence of a strategy
that has failed to break away from its long-established ideas and
adapt to the changing market for cars
àWhat roles does strategy perform?
- Strategy as decision support
- Strategy as coordinating device
- Strategy as target (achieving long-term goals)
- Strategy as animation and orientation
- Strategy not primarily focused on profits, but in creating value and be able to adapt
along the way
à Strategy can be identified:
- Mission statements
o Google: To organize the world’s information and make it universally
accessible and useful
- A statement of principles
- Vision statement
- Strategy statement
à Some basic elements of good strategy (Rumelt, 2011)
- Understanding of environment and competitors (diagnosis of challenge)
- Guiding policy
- A set of coherent actions
à Strategy a focus on the present (positioning à market scope, geographical scope,
vertical scope, defining competitive advantage) and in preparing for the future (direction
à vision and mission statement, performance goals, R&D, growth models: organic
growth, M&A, alliances)
Strategy / Tactic
Ø Strategy is choice and is the overall plan for deploying resources to establish a
favourable position, whereas, a tactic is a scheme for a specific action (Grant &
Jordan, 2015) – TACTICS make you win the battle / STRATEGY makes you win
the war.
A key level for Amazon to derive sales growth was to remove shipping charges. During
2000 and 2001 holiday season, Amazon started offering shipping free of charge. This was
considered a tactical measure, since they could be introduced and withdrawn at any time.
On the other hand, Amazon Prime, introduced 2005, was a strategic initiative, charging a
3
, fee to cover 12 months of free express delivery, making a commitment for a year.
Consequently, Amazon Prime members had a huge incentive to maximise purchases,
forcing Amazon to rise merchandise supply to cover demand (strategy)
Corporate Strategy / Business Strategy
à Levels of strategy follow business level strategy (competitive advantage) à corporate
level strategy (corporate configuration) à network level (inter-firm relations)
à Corporate strategy (where to compete): industry or markets (Investment
diversification, vertical integration, acquisition and new ventures, allocation of resources,
divestments)
• Apple
o Diversification
§ Distinct capabilities and standardized products, allowing some
degree of personalisation (iMac, iPhone. iPod. iPad, Apple Watch,
Apple TV), whereas running on the same operating system
§ Pricing (through economies of scale and outsourcing of
manufacturing to China) à strategic allies
• Intel processors
Business strategy (how to compete): concerned with how the firm competes within a
particular industry or markets to gain a competitive advantage
• Apple
o Differentiation
§ Design quality (simplicity)
§ Positioned itself in the high-end market (reputation for creating
highly valued products for customers)
§ Distribution (established retail stores around the world, superior
delivery)
§ Bar for technical support within stores)
§ Dedicated customer service
(Hambrick, 1980)
There is no ideal way of operationalizing the strategy construct, therefore, discusses
alternative ways of operationalizing strategy for business level-strategy
• Textual Descriptions
o Minzberg (1977)
o Viewing strategy as a situational art that can best be studied through in-
depth case studies
4
