Transcript The Concept of Strategy

THE CONCEPT OF STRATEGY
AND STRATEGIC
MANAGEMENT
G. Tyge Payne, PhD
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Strategic Management
Strategy: The unifying theme that gives coherence and
direction to the decisions of an organization
Strategic Management: Consisting of the analysis,
decisions, and actions an organization undertakes in
order to create and sustain competitive advantages.
Or, the Strategic Management Process is:
The full set of commitments, decisions, and actions
required for a firm to create value and earn aboveaverage returns. (Hitt, Hoskinson, & Ireland, 2004, p. 4)
Strategic Management basically seeks to answer the question:
How and why do some firms outperform others?
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Other Definitions of Strategy
Oxford Dictionary: The art of war, especially the planning of
movements of troops and ships etc., into favorable positions; plan
of action or policy in business or politics etc.
Chester I. Barnard: Strategy is intended to focus on the
interdependence of the adversaries’ decisions and on their
expectations about each other’s behavior.
Alfred D. Chandler Jr.: The determination of the long run goals and
objectives of an enterprise, and the adoption of courses of action
and the allocation of resources necessary for carrying out these
goals.
Kenneth Andrews: Strategy is the pattern of objectives, purposes or
goals and the major policies and plans for achieving these goals,
stated in such a way as to define what business the company is in or
is to be in and the kind of company it is or is to be.
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The Origins of Strategy
Know the other and know yourself: Triumph without peril.
Know Nature and know the Situation: Triumph completely.
- Sun Tzu (~360 B.C.)
• Business strategy is a relatively young field of study – but its
roots go back to early military strategy.
• Strategy comes from the Greek word strategos, which is
formed from stratos, meaning army, and –ag, meaning to
lead.
• Carl von Clausewitz wrote in the early 1800’s that
“tactics…[involve] the use of armed forces in the
engagement, strategy [is] the use of engagements for the
objects of war.”
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More Recent Historical
Development of Business Strategy
• Not until very large companies with the ability to influence the
competitive environment within their industries did strategic
thinking in the business world begin to be articulated.
– Alfred Sloan, CEO of GM, 1923 – 1946 - One of the first to analyze competition,
Ford, and devise a strategic plan based on its strengths and weaknesses.
– Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers
should pay attention to “strategic factors” which depend on “personal or
organizational action.”
• Wartime (WWI and WWII) efforts also impacted strategic
thinking and use of formal strategic tools and concepts:
–
–
–
–
Allocation of scarce resources
Use of quantitative analysis in planning
The concept of “learning curves”
The concept of “distinctive competence” - first mentioned by Philip Selznick, a
sociologist, in a debate about whether or not to combine the military forces into a
single unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).
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More Historical Development
• It wasn’t until the 1950’s that strategy was truly introduced in business
schools as a way of analyzing the competitive environment and setting
organizational goals and objectives to fit that environment.
• These concepts serve as the foundation of strategic management study:
– Previous “Business Policy” perspectives looked at maintaining a “balance in
accord with the underlying policies of the business as a whole.” – Harvard
– Kenneth Andrews’ SWOT Analysis was developed – still in use today.
– Theodore Levitt’s “Marketing Myopia” argued that when companies fail it
typically is because firms focus on the product rather than the changing
patterns of consumer needs and tastes.
– Igor Ansoff argued, in response to Levitt, that a firm’s mission should exploit
an existing need in the market, rather than using the consumer as the common
thread in business. “In reality a given type of customer will frequently have a
range of product missions or needs.” Corporate Strategy, 1965.
– BCG developed the “experience curve” and portfolio analysis concepts.
– McKinsey & Company’s development of SBUs and the nine-block matrix.
– Mintzberg’s “Deliberate, Emergent & Realized Strategies”
– Porter’s Generic Strategies
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The Evolution of Strategic Management
DOMINANT
THEME
MAIN
ISSUES
KEY
CONCEPTS
&
TOOLS
MANAGEMENT
IMPLICATIONS
1950s
1960s-early 70s
Mid-70s-mid-80s
Late 80s –1990s
Budgetary
planning &
control
Corporate
planning
Positioning
Competitive
advantage
Strategic
innovation
Financial
control
Planning
growth &diversification
Selecting
sectors/markets.
Positioning for
leadership
Focusing on
sources of
competitive
advantage
Reconciling
size with
flexibility &
agility
Capital
budgeting.
Financial
planning
Forecasting.
Corporate
planning.
Synergy
Industry analysis
Segmentation
Experience curve
Portfolio analysis
Resources &
Cooperative
capabilities.
strategy.
Shareholder
Complexity.
value.
Owning
E-commerce.
standards.
— Knowledge Management—
Coordination
& control by
Budgeting
systems
Corporate
planning depts.
created. Rise of
corporate
planning
Diversification.
Restructuring.
Global strategies. Reengineering.
Matrix structures Refocusing.
Outsourcing.
2000s
Alliances &
networks
Self -organiz
ation & virtual
organization
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Ansoff’s Product / Mission Matrix*
Present
Mission
New
Mission
Present
Product
New
Product
Market
Penetration
Product
Development
Market
Diversification
Development
*Categories define the common thread in an
organization’s business/corporate strategy.
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BCG’s Growth-Share Matrix
High
Share
Low
Share
High
Growth
Star
Question
Mark
Slow
Growth
Cash
Cow
?
Bark!!
Dog
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Forms of Strategy
Mintzberg’s Critique of Formal Strategic Planning:
•The fallacy of prediction – the future is
unknown
•The fallacy of detachment -- impossible to
divorce formulation from implementation
•The fallacy of formalization --inhibits flexibility,
spontaneity, intuition and learning.
Unrealized
Strategy
Emergent
Strategy
Realized
Strategy
**Normally emergent strategy comes from
learning and dissemination within the organization.
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Porter’s Generic Strategies
Competitive Advantage
Lower Cost
Differentiation
Strategy 1
Broad
Target
Competitive
Scope
Narrow
Target
Cost
Leadership
Strategy 3A
Cost Focus
Strategy 2
Differentiation
Strategy 3B
Differentiation
Focus
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Why is SM, as a field of study, necessary?
Why are all these theories/tools needed ?
•
•
•
•
•
•
•
•
Provides a framework for thinking about the “business”
Creates a fit between the organization and its external
environment.
Provides a process of coping with change and organizational
renewal
Fosters anticipation, innovation, and excellence
Facilitates consistent decision-making
Creates organizational focus
Acts as a process of organizational leadership.
Finally and most importantly: To help the organization to
succeed (outperform) against its competition!!
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Strategy, Survival and Success
•
The ultimate goal of the organizations is to be
successful – success is:
•
•
•
•
Strategy can help achieve success, but it doesn’t
guarantee it—certain features of strategy directly
contribute to success:
1.
2.
3.
4.
•
Survival (long-term success)
Achievement of Goals
Above average returns/Profitability (probably most important,
because it determines the ability to achieve the above two)
Goals that are simple, consistent, and long-term.
Profound understanding of the competitive environment.
Objective appraisal of resources.
Effective implementation.
These observations concerning the role of strategy can be
made in relation to most human endeavors be it warfare,
chess, politics, sport or business.
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Competition and Competitive Advantage
• Competition provides the rationale for
strategy – without competition, strategy is
of no concern.
• The essence of strategy is the
interdependence of competitors—or the
establishment of sustainable competitive
advantage over rivals.
• The study of strategy involves how we go
about identifying, establishing, and
sustaining competitive advantage.
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Thinking Strategically:
The Three Big Strategic “Analysis” Questions
1. Where are we now? What is our situation?
2. Where do we want to go?
– Business(es) we want to be in and market
positions we want to stake out
– Buyer needs and groups we want to serve
– Outcomes we want to achieve
3. How will we get there?
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Differing Perspectives of the Strategic
Management Process
I/O Model
RBV Model
External Environment
Resources
Industry Attractiveness
Capability
Strategy Formulation
Sustainable CA
Assets/Skills Assessment
Strategy Formulation
Implementation
Implementation
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Four Assumptions of the I/O Model
1. The external environment is assumed to possess
pressures and constraints that determine the strategies
that would result in above-average returns.
2. Most firms competing within a particular industry are
assumed to control similar strategically relevant
resources and to pursue similar strategies in light of those
resources.
3. Resources used to implement strategies are highly mobile
across firms.
4. Organizational decision makers are assumed to be
rational and committed to acting in the firm’s best
interests, as shown by their profit-maximizing behaviors.
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Our Approach to Studying the Strategic
Management Process
• Both the I/O and RBV perspectives are
useful to managers and essential to
understanding the strategic management
process.
• One essentially takes an outward-in (I/O)
perspective while other takes an inward-out
(RBV) perspective.
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Strategic Control (6)
Formulating Directions
- Develop Vision/Mission (1)
-Set Objectives (2)
Organizational Culture
Stakeholder Influence
Values / Ethics
Strategic Analyses (3)
Opportunities and Threats
from Economic, Political,
Technological etc Sources
External Environment
Competitor/Stakeholder
Internal Organization
Strategy Formulation (4)
-Formulate and Consider
Alternatives
-Make Strategy Choice
Opportunities and Threats
from Competition and
Key Stakeholders
Organizational Culture
Stakeholder Influence
Values / Ethics
Context of Strategy
(type of organization, culture, values,
life cycle competitive position)
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Birnbaum’s Strategy 21 Process
•
•
•
•
•
Examine the Current Business Model
Go Beyond the Current Business Model
Design a “Grand Strategy”
Develop a Compelling Vision
Assure Enablers of Strategy
•
•
•
•
•
•
Intellectual Capacity
Processes
Organizational Structures
Technologies
External Relationships
Capital Resources
Strategic
Formulation and
Implementation
• Set Objectives to Measure Success
• Design a Monitoring Process
Similar to
Internal and
Competitive
Analysis
Similar to
Internal and
Competitive
Analysis
Basic Decision
to Make Major
Change or Not
Related Issues to
Monitor
Implementation
Process
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Hambrick & Fredrickson, 2001
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The Strategy Concept
Levels of Analysis
• Where to Compete?
Corporate
Strategy
• How to Compete?
Business
Strategy
• How to Contribute?
Functional
Strategy
Choice of Products
Choice of Markets
Choice of Competitors
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INDUSTRY
ATTRACTIVENESS
RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL
How do we
make
money?
Which
businesses
should we be
in?
CORPORATE
STRATEGY
COMPETITIVE
ADVANTAGE
How should
we compete?
BUSINESS
STRATEGY
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