THE CONCEPT OF STRATEGY

AND STRATEGIC
MANAGEMENT
G. Tyge Payne, PhD

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 others 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 1800s 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).
5

More Historical Development

It wasnt until the 1950s 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 Levitts 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 firms 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 & Companys development of SBUs and the nine-block matrix.
Mintzbergs Deliberate, Emergent & Realized Strategies
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Porters Generic Strategies

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

2000s

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. Alliances &
Global strategies. Reengineering. networks
Matrix structures Refocusing.
Self -organiz
Outsourcing.
ation & virtual
organization
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Ansoffs 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

organizations business/corporate strategy.
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BCGs Growth-Share Matrix

High
Share

Low
Share

High
Growth

Star

Question
Mark

Slow
Growth

Cash
Cow

Bark!!

Dog

In
St tend
ra ed
te g
y

Forms of Strategy
Mintzbergs
MintzbergsCritique
Critiqueof
ofFormal
FormalStrategic
StrategicPlanning:
Planning:
The
fallacy
of
prediction

the
future
is
The fallacy of prediction the future is
unknown
unknown
The
Thefallacy
fallacyof
ofdetachment
detachment ----impossible
impossibleto
to
divorce
formulation
from
implementation
divorce formulation from implementation
The
Thefallacy
fallacyof
offormalization
formalization--inhibits
--inhibitsflexibility,
flexibility,
spontaneity,
intuition
and
learning.
spontaneity, intuition and learning.

De
lib
era
te
Str
ate
g

Unrealized
Strategy

Emergent
Strategy

Realized
Strategy

**Normally emergent strategy comes from

learning and dissemination within the organization.
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Porters Generic Strategies

Competitive Advantage
Lower Cost
Differentiation
Strategy 1

Broad
Target
Competitive
Scope
Narrow
Target

Cost
Leadership
Strategy
Strategy3A
3A

Cost
CostFocus
Focus

Strategy
Strategy22

Differentiation
Differentiation

Strategy
Strategy3B
3B

Differentiation
Differentiation
Focus
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 doesnt

guarantee itcertain 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 competitorsor 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 firms 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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StrategicControl
Control(6)
(6)
Strategic

Implementation(5)
(5)
Implementation

Formulating
FormulatingDirections
Directions
--Develop
DevelopVision/Mission
Vision/Mission(1)
(1)
-Set
-SetObjectives
Objectives(2)
(2)
Strategic
StrategicAnalyses
Analyses(3)
(3)
External Environment
Competitor/Stakeholder
Internal Organization
Strategy
StrategyFormulation
Formulation(4)
(4)
-Formulate
-Formulateand
andConsider
Consider
Alternatives
Alternatives
-Make
-MakeStrategy
StrategyChoice
Choice

Organizational Culture
Stakeholder Influence
Values / Ethics
Opportunities and Threats
from Economic, Political,
Technological etc Sources
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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Birnbaums 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
20

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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