Transcript The Concept of Strategy

THE CONCEPT OF
STRATEGY
Reading Recommendations:
2. “What is Strategy?” Michael Porter, Harvard Business Review, 1996.
3. “Marketing Myopia” Theodore Levitt, Harvard Business Review, 1960.
4. “Of Strategies, Deliberate and Emergent,” Mintzberg & Waters, Strategic
Management Journal, 1985.
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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.
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 young field – 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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Strategic Management - Defined
Strategy: The unifying theme that gives coherence and
direction to the decisions of an organization
(entails choices among alternatives and signals organizational
commitments, competitive approaches, and ways of doing
business)
D&L: “Strategic management consists of the analysis,
decisions, and actions an organization undertakes in
order to create and sustain competitive advantages.”
(strategic management = active)
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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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Historical Development - 2
•
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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Ansoff’s Product / Mission Matrix*
Present
Mission
New
Mission
Present
Product
New
Product
Market
Penetration
Product
Development
Market
Development
Diversification
*Categories define the common thread in an organization’s business/corporate
strategy.
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BCG’s Growth-Share Matrix
High
Growth
Slow
Growth
High
Share
Low
Share
Star
Question
Mark
Cash
Cow
Dog
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Forms of Strategy
Realized
Strategy
Unrealized
Strategy
Emergent
Strategy
**Normally emergent strategy comes from
learning and dissemination within the organization.
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Sources of Superior Profitability
INDUSTRY
ATTRACTIVENESS
RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL
Which industries
should we be in?
CORPORATE
STRATEGY
How do we make
money?
COMPETITIVE
ADVANTAGE
How should we
compete?
BUSINESS
STRATEGY
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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 Are Strategies Needed ?
•
To proactively shape how a company’s business will be conducted.
•
To mold the independent actions and decisions of managers and
employees into a coordinated, company-wide game plan.
•
To help the organization to succeed against its competition!!
Key Attributes of Strategic Management:

Directs the organization toward overall goals and objectives.

Involves the inclusion of multiple stakeholders in decision making.

Needs to incorporate short-term and long-term perspectives.

Recognizes tradeoffs between efficiency and effectiveness.
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Strategy, Survival and Success
•
•
The ultimate goal of the organizations is to be successful –
success is:
•
Survival (long-term success)
•
Achievement of Goals
•
Profitability (probably most important, because it
determines the ability to achieve the above two)
Strategy can help achieve success, but it doesn’t guarantee it—
certain features of strategy directly contribute to success:
1. Goals that are simple, consistent, and long-term.
2. Profound understanding of the competitive environment.
3. Objective appraisal of resources.
4. 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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The Strategy Concept
Key Elements
Performance
Strategic Control
Strategy
Formulation
Environment
Strategy
Strategy
Implementation
Organization
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The Strategy Concept
Levels of Analysis
•
Where to Compete?
Corporate
Strategy
•
How to Compete?
Busines s
Strategy
•
How to Contribute?
Functional
Strategy
Choice of Products
Choice of Markets
Choice of Competitors
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The Strategy Concept
Sources or Drivers of Strategy
Mission
Vision
Goals
Objectives
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The Evolution of Strategic Management
THEME &
ISSUES
1950s
1960s
1970s
1980s
early
1990s
late
1990s
Financial
planning &
control
Corporate
planning
Corporate
strategy
Positioning
Quest for
competitive
advantage &
shareholder
value
Strategic
innovation
Budgeting
project appraisal
Forecasting &
investment
planning
Portfolio
planning.
Synergy
market
share
Analysis of
industry &
competition
Resource
analysis.
Case
competencies
Dynamic
sources of
advantage
Knowledge
management
cooperation
Emphasis on
financial
management
The rise of
corporate planning
departments
& formal
planning
DiversifiIndustry and
cation.
market selectQuest for
ivity. Active
global
asset
market share management
Restructuring
BPR.
Refocussing
Outsourcing
Virtual organization.
Alliances
competing
for the future
CONCEPTS/
TECHNIQUES
IMPLEMENTATIONS
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