Chapter 1
Introduction – The nature of Strategic Management
Introduction
- Reasons for the heightened complexity in managing an organisation nowadays are:
• Increasingly competitive business practices
• The inclination towards strategic flexibility to accommodate change
• The emergence of networked organisations
• Concern for sustainability and business ethics in the global arena
- NB for managers to think strategically about how they achieve a competitive advantage
- Leaders need to understand where they fit into the global competitive landscape, what it
means to be a sustainable organisation and how they contribute to strategic development,
change and transformation
- Management is faced with critical questions:
• Competitive positioning
• Resources and dynamic capabilities
Where are • Appeal and innovative value added to products & services
we now? • Extent to which it meets the needs and expectations of its customers and stakeholders
• Environmental integrity
• Current performance
Where do • Strategic direction that management believes the organisation should adopt
we want to
go?
• How strategy is formulated at the different organisational levels based on customer needs,
How will
stakeholder expectations, integration with the environment and ethical perspectives
we get
• The influence of leadership, values, organisational culture, and organisational architecture on strategy
there?
implementation
How are we • Requires that strategic leaders manage the performance of the organisation b.m.o strategic control
doing? measures and appropriate feedback
Strategy Conceptualised
- Concept of strategy dates back to ancient Athens
- Always considered to be a key element of managerial activity
- Definitions of strategy
• A plan, method or series of actions designed to achieve a specific goal or effort
• Determination of the long-run goals and objectives of an enterprise, and the adoption
of courses of action and the allocation of resources for carrying out these goals
• A pattern or plan that integrates an organisation’s major goals, policies and action
sequences into a cohesive whole
• The sole purpose of strategic planning is to enable a company to gain, as efficiently as
possible, a sustainable edge over competitors
• Strategy is the direction and scope of an organisation over the long term which
achieves advantage in a changing environment through its configuration of resources
and competencies with the aim of fulfilling stakeholder expectations
Historical Origins of the Concept of Strategy
- Attempts are constantly being made to redefine the concept
- Derived from the Greek word strategos (a general), but strategos is derived from stratos
(army) and agein (to lead)
• Therefore, strategy was associated with the military and the art of leading the army
- Only in 20th century that the concept of strategy gained importance in the business world
- Tactic: A plan for a specific action
- Strategy: The overall scheme for leveraging resources to obtain a competitive advantage
, - Strategic decisions share common characteristics:
• Concerned with long-term direction and sustainable success
• Exploits the links between the internal and external environments (strategic link)
• Require major resources
• Likely to affect the whole organisation
• Shaped by the values and expectations of stakeholders
• Directed by vision (the ability to move forward)
The Five Ps of Strategy
- Strategy as a plan vs. Strategy as a perspective
• As a plan, strategy has traditionally been viewed as something an organisation “has”
• As a perspective, it is seen as something that people in an organisation “do,” therefore
the practice of strategy
- Practice of strategy is influenced by the extra-organisational practices of an organisation and
its wider social fields and the intra-organisational practices of people in the organisation and
their activities
- The challenge for organisations is to maintain a balance between intended and emergent
strategies = a Strategic Paradox
1. Strategy as a Plan
- Provides overall direction and course of action
- Views strategic decision making as formal, logical, top-down structured process
- Strategy is formulated b.m.o rational analysis of the organisation, its performance and
external environment
- Research suggests that formal planning systems contribute towards better strategic decision
making, and have a positive impact on organisational performance
- This approach aims to match a strategic link between the internal organisational capabilities
and external opportunities
- Criticised for being too rational, top-down
- Not realistic enough given the unpredictability of the 21st century competitive environment
2. Strategy as a Position
- Concerns the determination of particular products in particular markets
- As a position, strategy looks downwards (meeting customer needs) and outwards, towards
the external competitive market
- The focus is on an outside-in perspective
3. Strategy as a Perspective
- Organisation’s way of doing things
- Also called interpretive view or experience
- Future strategies are formed by adapting past strategies based on the collective experience
of individuals and the way of doing things according to the organisation
- Resolving different views and experiences = negotiation and bargaining
• The extent to which the strategic link is attained between the organisation and its
competitive environment is mediated by how individuals and management interpret
the internal resources and capabilities in the environment
- As a perspective, strategy looks inside the organisation (inside the mindset of collective
strategists) and upwards toward the strategic purpose, intent and direction of the
organisation
, 4. Strategy as a Ploy
- A specific manoeuvre to outwit a competitor
- Example: To give the impression of expanding capacity, an organisation may purchase land to
discourage a competitor from building a new plant
• The real strategy is not the expansion itself, but the threat or ploy
5. Strategy as a Pattern
- Concerns consistent behaviour over time
- Example: An organisation that perpetually markets cheap products pursues a low-cost
strategy
- A strategy needs to be planned (intended strategy) as it looks ahead
• Envisioned by top management
• Achieved by managers shaping and reshaping strategies as circumstances dictate, and
as they learn from experiences and seek out improvements
• Only 10% - 20% of intended strategies are realised
- Realised strategies: Strategies that evolve out of their past and do not always arise from
intended strategies
- Deliberate strategies: These are intended strategies that are fully realised
- Unrealised strategies / abandoned strategies: Intended strategies that are not realised
- Emergent strategy: When the pattern realised is not explicitly intended
• The patterns of decisions that emerge from individual managers adapting to changing
external circumstances and the ways in which the intended strategy is interpreted
• Neither a top-down, nor bottom-up, but rather an intuitive process of understanding
- NB lesson for strategists is that they need to recognise the process of emergence and
intervene where appropriate and they need to realise that strategies can grow from any point
in the organisation, provided they have the capacity to learn, and the resources to support
that capacity
- Management is responsible for evaluating appropriateness of emergent unplanned strategies
• Do this by comparing the emergent strategy with the organisation’s external
environment and internal resources and capabilities to assess whether there is a
strategic link between them, and whether there is alignment with the organisational
purpose
- It is normal for organisations to pursue an umbrella strategy in which broad outlines are
deliberate, while the details emerge within, provided learning takes place
The Essence of Strategy
- Strategy is concerned with the organisation and its environment
- Effective strategies are important to ensure value creation for all stakeholders and above-
average earnings for the organisation
- Strategy sets direction, focuses effort and provides consistency
- Strategies can be deliberate, intended but unrealised or emergent and exist on different levels
Levels of Strategy
- Primary objective of strategy is to achieve a sustained competitive advantage as this leads to
above-average returns (increased profitability)
1) Analyse, develop and formulate strategy
2) Implement strategy successfully
1. Business Level Strategy
- Relates to how organisation competes and attains competitive advantage in each area of
business
• i.e. through the products, services, creation of value for customers
- Strategic link between internal capabilities and external relationships is NB
, - General manager in charge of a line of business is responsible for:
• Orchestrating business level strategy
• Ensuring lower-level strategies are well conceived, consistent and match the
corporate level strategy
• Obtaining approval by corporate level executives and the board of directors
2. Corporate Level Strategy
- Relates to overall strategy purpose and scope of an organisation
- Addresses the question of how value can be added at all business levels and lines
- General discussions about what type of business the organisation conducts, or ought to be
conducting, are taken at this level
• Includes aspects like: Geographic coverage, diversity of products or services, turning
cross-business into competitive advantage, and divestments
- Senior managers are normally responsible for orchestrating corporate strategy, with input
from the key senior executives, who head up the business
- The board of directors usually reviews and approves corporate level decisions
3. Functional Level Strategy
- Includes operational level strategy
- Underpins business level strategy by implementing business strategies through the functional
areas (marketing, HR, production, IT, finance)
- Primary role is to support the overall business strategy and competitive approach by
performing strategy-critical activities
- Decision-making responsibility resides with the heads of the respective functional
departments, and the general manager (at business level) who approves the content of these
strategies
- If there is no clear link at business level, functional strategies are unlikely to be mutually
supportive and consistent
• Should be synergy and cooperation between the functional areas to achieve a
competitive advantage
Determining - What is our sustainable competitive advantage? General manager, with advice
competitive strategy - What value do we add? Where? How? and input from the heads of
Business
Strategy
and achieving - What markets should we compete in? functional areas
competitive - Who are our customers?
advantage
Overall purpose, - What is the purpose of the organisation? CEO or MD, board of directors
Corporate
scope, range and - What type of business are we conducting? and other senior executives
Strategy
diversity of the - What is our overall direction for the future?
organisation - What is our leadership style and organisational
culture?
Source of - What is the role of this department in delivering Heads of functional sections with
competitive business level strategy? involvement of key employees
Functional
Strategy
advantage in terms - How is strategy implemented and coordinated at
of activities, functional levels?
processes, practices
and resources
Strategic Management
- Success of organisation is determined by the effectiveness and efficiency of its management
- Efficiency = doing things right
- Effectiveness = Doing the right things
- Effectiveness is associated with strategic management, while efficiency is related to
operational management
Introduction – The nature of Strategic Management
Introduction
- Reasons for the heightened complexity in managing an organisation nowadays are:
• Increasingly competitive business practices
• The inclination towards strategic flexibility to accommodate change
• The emergence of networked organisations
• Concern for sustainability and business ethics in the global arena
- NB for managers to think strategically about how they achieve a competitive advantage
- Leaders need to understand where they fit into the global competitive landscape, what it
means to be a sustainable organisation and how they contribute to strategic development,
change and transformation
- Management is faced with critical questions:
• Competitive positioning
• Resources and dynamic capabilities
Where are • Appeal and innovative value added to products & services
we now? • Extent to which it meets the needs and expectations of its customers and stakeholders
• Environmental integrity
• Current performance
Where do • Strategic direction that management believes the organisation should adopt
we want to
go?
• How strategy is formulated at the different organisational levels based on customer needs,
How will
stakeholder expectations, integration with the environment and ethical perspectives
we get
• The influence of leadership, values, organisational culture, and organisational architecture on strategy
there?
implementation
How are we • Requires that strategic leaders manage the performance of the organisation b.m.o strategic control
doing? measures and appropriate feedback
Strategy Conceptualised
- Concept of strategy dates back to ancient Athens
- Always considered to be a key element of managerial activity
- Definitions of strategy
• A plan, method or series of actions designed to achieve a specific goal or effort
• Determination of the long-run goals and objectives of an enterprise, and the adoption
of courses of action and the allocation of resources for carrying out these goals
• A pattern or plan that integrates an organisation’s major goals, policies and action
sequences into a cohesive whole
• The sole purpose of strategic planning is to enable a company to gain, as efficiently as
possible, a sustainable edge over competitors
• Strategy is the direction and scope of an organisation over the long term which
achieves advantage in a changing environment through its configuration of resources
and competencies with the aim of fulfilling stakeholder expectations
Historical Origins of the Concept of Strategy
- Attempts are constantly being made to redefine the concept
- Derived from the Greek word strategos (a general), but strategos is derived from stratos
(army) and agein (to lead)
• Therefore, strategy was associated with the military and the art of leading the army
- Only in 20th century that the concept of strategy gained importance in the business world
- Tactic: A plan for a specific action
- Strategy: The overall scheme for leveraging resources to obtain a competitive advantage
, - Strategic decisions share common characteristics:
• Concerned with long-term direction and sustainable success
• Exploits the links between the internal and external environments (strategic link)
• Require major resources
• Likely to affect the whole organisation
• Shaped by the values and expectations of stakeholders
• Directed by vision (the ability to move forward)
The Five Ps of Strategy
- Strategy as a plan vs. Strategy as a perspective
• As a plan, strategy has traditionally been viewed as something an organisation “has”
• As a perspective, it is seen as something that people in an organisation “do,” therefore
the practice of strategy
- Practice of strategy is influenced by the extra-organisational practices of an organisation and
its wider social fields and the intra-organisational practices of people in the organisation and
their activities
- The challenge for organisations is to maintain a balance between intended and emergent
strategies = a Strategic Paradox
1. Strategy as a Plan
- Provides overall direction and course of action
- Views strategic decision making as formal, logical, top-down structured process
- Strategy is formulated b.m.o rational analysis of the organisation, its performance and
external environment
- Research suggests that formal planning systems contribute towards better strategic decision
making, and have a positive impact on organisational performance
- This approach aims to match a strategic link between the internal organisational capabilities
and external opportunities
- Criticised for being too rational, top-down
- Not realistic enough given the unpredictability of the 21st century competitive environment
2. Strategy as a Position
- Concerns the determination of particular products in particular markets
- As a position, strategy looks downwards (meeting customer needs) and outwards, towards
the external competitive market
- The focus is on an outside-in perspective
3. Strategy as a Perspective
- Organisation’s way of doing things
- Also called interpretive view or experience
- Future strategies are formed by adapting past strategies based on the collective experience
of individuals and the way of doing things according to the organisation
- Resolving different views and experiences = negotiation and bargaining
• The extent to which the strategic link is attained between the organisation and its
competitive environment is mediated by how individuals and management interpret
the internal resources and capabilities in the environment
- As a perspective, strategy looks inside the organisation (inside the mindset of collective
strategists) and upwards toward the strategic purpose, intent and direction of the
organisation
, 4. Strategy as a Ploy
- A specific manoeuvre to outwit a competitor
- Example: To give the impression of expanding capacity, an organisation may purchase land to
discourage a competitor from building a new plant
• The real strategy is not the expansion itself, but the threat or ploy
5. Strategy as a Pattern
- Concerns consistent behaviour over time
- Example: An organisation that perpetually markets cheap products pursues a low-cost
strategy
- A strategy needs to be planned (intended strategy) as it looks ahead
• Envisioned by top management
• Achieved by managers shaping and reshaping strategies as circumstances dictate, and
as they learn from experiences and seek out improvements
• Only 10% - 20% of intended strategies are realised
- Realised strategies: Strategies that evolve out of their past and do not always arise from
intended strategies
- Deliberate strategies: These are intended strategies that are fully realised
- Unrealised strategies / abandoned strategies: Intended strategies that are not realised
- Emergent strategy: When the pattern realised is not explicitly intended
• The patterns of decisions that emerge from individual managers adapting to changing
external circumstances and the ways in which the intended strategy is interpreted
• Neither a top-down, nor bottom-up, but rather an intuitive process of understanding
- NB lesson for strategists is that they need to recognise the process of emergence and
intervene where appropriate and they need to realise that strategies can grow from any point
in the organisation, provided they have the capacity to learn, and the resources to support
that capacity
- Management is responsible for evaluating appropriateness of emergent unplanned strategies
• Do this by comparing the emergent strategy with the organisation’s external
environment and internal resources and capabilities to assess whether there is a
strategic link between them, and whether there is alignment with the organisational
purpose
- It is normal for organisations to pursue an umbrella strategy in which broad outlines are
deliberate, while the details emerge within, provided learning takes place
The Essence of Strategy
- Strategy is concerned with the organisation and its environment
- Effective strategies are important to ensure value creation for all stakeholders and above-
average earnings for the organisation
- Strategy sets direction, focuses effort and provides consistency
- Strategies can be deliberate, intended but unrealised or emergent and exist on different levels
Levels of Strategy
- Primary objective of strategy is to achieve a sustained competitive advantage as this leads to
above-average returns (increased profitability)
1) Analyse, develop and formulate strategy
2) Implement strategy successfully
1. Business Level Strategy
- Relates to how organisation competes and attains competitive advantage in each area of
business
• i.e. through the products, services, creation of value for customers
- Strategic link between internal capabilities and external relationships is NB
, - General manager in charge of a line of business is responsible for:
• Orchestrating business level strategy
• Ensuring lower-level strategies are well conceived, consistent and match the
corporate level strategy
• Obtaining approval by corporate level executives and the board of directors
2. Corporate Level Strategy
- Relates to overall strategy purpose and scope of an organisation
- Addresses the question of how value can be added at all business levels and lines
- General discussions about what type of business the organisation conducts, or ought to be
conducting, are taken at this level
• Includes aspects like: Geographic coverage, diversity of products or services, turning
cross-business into competitive advantage, and divestments
- Senior managers are normally responsible for orchestrating corporate strategy, with input
from the key senior executives, who head up the business
- The board of directors usually reviews and approves corporate level decisions
3. Functional Level Strategy
- Includes operational level strategy
- Underpins business level strategy by implementing business strategies through the functional
areas (marketing, HR, production, IT, finance)
- Primary role is to support the overall business strategy and competitive approach by
performing strategy-critical activities
- Decision-making responsibility resides with the heads of the respective functional
departments, and the general manager (at business level) who approves the content of these
strategies
- If there is no clear link at business level, functional strategies are unlikely to be mutually
supportive and consistent
• Should be synergy and cooperation between the functional areas to achieve a
competitive advantage
Determining - What is our sustainable competitive advantage? General manager, with advice
competitive strategy - What value do we add? Where? How? and input from the heads of
Business
Strategy
and achieving - What markets should we compete in? functional areas
competitive - Who are our customers?
advantage
Overall purpose, - What is the purpose of the organisation? CEO or MD, board of directors
Corporate
scope, range and - What type of business are we conducting? and other senior executives
Strategy
diversity of the - What is our overall direction for the future?
organisation - What is our leadership style and organisational
culture?
Source of - What is the role of this department in delivering Heads of functional sections with
competitive business level strategy? involvement of key employees
Functional
Strategy
advantage in terms - How is strategy implemented and coordinated at
of activities, functional levels?
processes, practices
and resources
Strategic Management
- Success of organisation is determined by the effectiveness and efficiency of its management
- Efficiency = doing things right
- Effectiveness = Doing the right things
- Effectiveness is associated with strategic management, while efficiency is related to
operational management
