Fundamentals of Strategy
Gerry Johnson, Richardd Whttington and Kevan Scholes
Chapter 1: Introducing Strategy
Strategy matters to almost all organisations, and to everybody working in them.
Strategy is the long-term direction of an organisation. This book’s definition of strategy has two advantages. First, the long-
term direction of an organisation can include both deliberate, logical strategy and more incremental, emergent patterns of
strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strategies
that recognise the roles of cooperation and even imitation. The three elements of this strategy definition can each be
explored further:
- The long term. The importance of a long-term perspective on strategy is emphasises by the ‘three horizons’ framework.
The three horizons framework suggests that every organisation should think of itself as comprising three types of business
or activity, defined by their ‘horizons’ in terms of years.
Horizon 1: extend and defend core business
Horizon 2: build emerging businesses
Horizon 3: create viable options
The basic point about the ‘three horizons’ framework is that managers need to avoid focusing on the short-term issues of
their existing activities.
- Strategic direction. 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 complex 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. Externally, organisations are surrounded by
important relationships, for example with suppliers, customers, alliance partners, regulators and shareholders.
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. Corporate-level strategy issues include 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. Business-level
strategy typically concerns issues such as innovation, appropriate scale and response to competitors’ moves.
- Operational strategies are concerned with how the components of an organization deliver effectively the corporate- and
business-level strategies in terms of resources, processes and people.
This need to link the corporate, business and operational levels underlines the importance of integration in strategy. Each
level needs to be aligned with the others.
Strategy statements should have three main themes: the fundamental goals that the organisation seeks, which typically
draw on the organisation’s stated mission, vision and objectives; the scope or domain of the organisation’s activities; and
the particular advantages or capabilities It has to deliver all of these.
- Mission. This relates to goals, and refers to the overriding purpose of the organisation.
- Vision. This too relates to goals, and refers to the desired future state of the organisation.
- Objectives. These are more precise and, ideally, quantifiable statements of the organisation’s goals over some period of
time.
- Scope. An organisation’s scope or domain refers to three dimensions: customers or clients; geographical location; and
extent of internal activities.
- Advantage. This part of a strategy statement describes how the organisation will achieve to objectives it has set for itself
in its chosen domain. In competitive environments, this refers to the competitive advantage.
The Exploring Strategy Model includes understanding the strategic position of an organisation; assessing strategic choices
for the future and managing strategy in action.
The strategic positions is concerned with the impact on strategy of the external environment, the organisation’s strategic
capability (resources and competences), the organisation’s goals and the organisation’s culture.
- Environment. Organisations operate in a complex political, economic, social and technological world. These environments
vary widely in terms of their dynamism and attractiveness. The fundamental question here relates to the opportunities and
threats available to the organisation in this complex and changing environment.
- Strategic capability. Each organisation has its own strategic capabilities, made up of its resources and competences. The
Gerry Johnson, Richardd Whttington and Kevan Scholes
Chapter 1: Introducing Strategy
Strategy matters to almost all organisations, and to everybody working in them.
Strategy is the long-term direction of an organisation. This book’s definition of strategy has two advantages. First, the long-
term direction of an organisation can include both deliberate, logical strategy and more incremental, emergent patterns of
strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strategies
that recognise the roles of cooperation and even imitation. The three elements of this strategy definition can each be
explored further:
- The long term. The importance of a long-term perspective on strategy is emphasises by the ‘three horizons’ framework.
The three horizons framework suggests that every organisation should think of itself as comprising three types of business
or activity, defined by their ‘horizons’ in terms of years.
Horizon 1: extend and defend core business
Horizon 2: build emerging businesses
Horizon 3: create viable options
The basic point about the ‘three horizons’ framework is that managers need to avoid focusing on the short-term issues of
their existing activities.
- Strategic direction. 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 complex 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. Externally, organisations are surrounded by
important relationships, for example with suppliers, customers, alliance partners, regulators and shareholders.
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. Corporate-level strategy issues include 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. Business-level
strategy typically concerns issues such as innovation, appropriate scale and response to competitors’ moves.
- Operational strategies are concerned with how the components of an organization deliver effectively the corporate- and
business-level strategies in terms of resources, processes and people.
This need to link the corporate, business and operational levels underlines the importance of integration in strategy. Each
level needs to be aligned with the others.
Strategy statements should have three main themes: the fundamental goals that the organisation seeks, which typically
draw on the organisation’s stated mission, vision and objectives; the scope or domain of the organisation’s activities; and
the particular advantages or capabilities It has to deliver all of these.
- Mission. This relates to goals, and refers to the overriding purpose of the organisation.
- Vision. This too relates to goals, and refers to the desired future state of the organisation.
- Objectives. These are more precise and, ideally, quantifiable statements of the organisation’s goals over some period of
time.
- Scope. An organisation’s scope or domain refers to three dimensions: customers or clients; geographical location; and
extent of internal activities.
- Advantage. This part of a strategy statement describes how the organisation will achieve to objectives it has set for itself
in its chosen domain. In competitive environments, this refers to the competitive advantage.
The Exploring Strategy Model includes understanding the strategic position of an organisation; assessing strategic choices
for the future and managing strategy in action.
The strategic positions is concerned with the impact on strategy of the external environment, the organisation’s strategic
capability (resources and competences), the organisation’s goals and the organisation’s culture.
- Environment. Organisations operate in a complex political, economic, social and technological world. These environments
vary widely in terms of their dynamism and attractiveness. The fundamental question here relates to the opportunities and
threats available to the organisation in this complex and changing environment.
- Strategic capability. Each organisation has its own strategic capabilities, made up of its resources and competences. The
