Strategy in Context

Strategy: A Brief History and a Theoretical

Overview

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Question 1
• What does commodity fetishism do?
a) Conceal the truth about how the product value is created
b) Conceal the true cost of a product
c) Makes us think more about who made the products we use
d) Makes us think about sexy clothes

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Question 2
• How would you describe capitalism?
• As a system of economic relations
• As an ideological system
• As a system of social relations
• All of the above

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Question 3
• In the capitalist system, freedom is defined primarily as…
a) Freedom of speech
b) Freedom to vote in a democratic election
c) Freedom to own and do as you please with your property
d) All of the above

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Question 4
• Ideological systems impact strategic thinking by…
a) Creating a system of knowledge that defines the ultimate aim of strategy-
making
b) Explicitly telling managers what they must think
c) Determining what resources are available to managers
d) All of the above

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Question 5
• How does capitalism encourage us to think about the relationships
between business and society?
a) As cooperative and supportive
b) As involving close interaction
c) As being easy to manage
d) What society?

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Lecture overview
• The basic strategy development process
• Definitions of strategy
• Perspectives on strategy development
• Key historical theoretical perspectives that inform our thinking about
strategy today

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Strategy
• From Greek “Strategia” – “Art of a general or troop leader”.
• A military concept incorporated into thinking about business organisations in
the 1950s and 1960s
• Still largely defines how we think about broad business decision-
making/planning today

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Strategic Management
Paradigm

Analysis/Context:
The situation in which and
for which strategy develops

Alternatives/Content:
Action/Process:
Aims, objectives and actions
expected of those The way in which strategy
influencing and influence by develops and is implemented
developing strategy

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Mintzberg’s Concept of Strategy
Intended Strategy
(plan or intended position)

Deliberate Strategy
(strategy formulation)

Unrealised Strategy

Emergent Strategy Realised Strategy

(strategy formation) (pattern or actual position)

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Levels of Strategy

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Definition: The Five P’s
• Strategy as a Plan
• Strategy as a Pattern
• Strategy as a Position
• Strategy as a Perspective
• Strategy as a Ploy

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The Strategy Elephant

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The Prescriptive Approach
• Focus: How strategy should be formed
• Strategic management as
• Design
• Planning or
• Positioning
• Tools: SWOT, PESTLE, Ansoff’s matrix, Porter’s models…
• Strategy should be a formal, deliberate process of conscious thought
• Is based on objective and on-going analysis of external environment
and internal capabilities in relation to organisational objectives
• Responsibility lies with top management or dedicated planning teams

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The Planning School

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The Descriptive Approach
• Focus: How strategy is actually formed
• Strategy is:
• Visionary (entrepreneurial perspective)
• Incremental (learning perspective)
• Reactive (environmental perspective)
• A negotiation (political perspective)
• A social construction (cognitive and cultural perspectives)
• Challenge to notions of strategy as objective, deliberate, far-reaching,
formal and non-conflictual

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Quinn, Strategies For Change:
Logical Incrementalism, 1980:
55 – Analysis of Pilkington
Brothers Ltd. strategic
development

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Power Dynamics in Strategy
Individual manager’s balancing act Stakeholders/
Interest Groups

Government

Managers General Public

Shareholders Customers

Suppliers
Workers
Non-Profit
Organisations

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Activity: Employee compensation
strategy
• https://www.youtube.com/watch?v=8tVKGcR4Pq4
• Talk to a person next to you about the video.
• What strategy “school/s” (or perspective/s) describes
best the formation of Amazon’s and similar
companies’ employee compensation strategy?
• Discussion time: 5 minutes
• Report back to class

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1959: Edith Penrose - The Theory of the Growth of the Firm
• Firm as a bundle of resources: “[A] firm is more than an administrative unit;
it is also a collection of productive resources the disposal of which between
different uses and over time is determined by administrative decision” (1959:
24).

• Resources are “the physical things a firm buys, leases, or produces for its
own use, and the people hired on terms that make them effectively part of
the firm” (1959: 67).

• Firms attain their unique character through the possession and deployment
of diverse (heterogeneous) resources

• The interaction between different resources determines a firm’s performance

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1962: Alfred Chandler – Strategy and Structure
• Historical accounts of large US organisations – railroads, oil
companies…
• Defined strategy as “the determination of the basic long-term
goals and objectives of an enterprise, and the adoption of
courses of action and the allocation of resources necessary for
carrying out the goals.” (1962: 13)
• Strategy is formulated in response to the changes in the
external environment
• Organisational structure is adjusted to accommodate strategy
(e.g. development of the M-form corporation)

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1965: Igor Ansoff - Corporate Strategy

• Strategy is “decisions on what kind of business the firm should seek to

be in” (1965: viii)
• Ansoff’s growth matrix:
• Product-market scope (old/new products and markets)
• Growth directions

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1965/69: Kenneth Andrews et al. – Business Policy: Text and Case
• Defined strategy as ““the pattern of objectives, purposes, or goals
and 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” (1969: 15).
• Strategy as composed of two interrelated activities: formulation
and implementation.
• To formulate strategy is to identify and reconcile four things:
• Market opportunity
• Firm competence and resources
• Managers’ personal values and aspirations
• Obligations to segments of society other than the stockholders

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1980s: Michael Porter
• A firm’s performance foremost depends of the industry
environment in which it competes
• Focus on the external environment as opposed to internal resources

• Industry structure determines behaviour of firms

• E.g. competitive dynamics
• ‘Hypercompetition’ of modern times

• Five Forces framework

• Analysis of the industry competitive environment and structure
• Firm’s success and competitive advantage depends on its positioning
and differentiation within its industry (generic strategies framework)

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1975/85: Oliver Williamson – Transaction Cost Economics
• Roots in 1932 Ronald Coase’s Theory of the Firm.
• Explanation of why organisations exist
• Hierarchies may be more effective than markets
• Internalisation of transactions

• Application:
• U-form, M-form and Hybrid organisations
• Cooperative strategies (joint ventures, strategic alliances)
• Questions of organisational growth (organic vs acquisitions)
• Foreign market entry modes

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 Contemporary strategic
management?

• Shift in focus?
• Traditionally – focus on improving organisational performance.
• More recently – redefining or widening the notion of performance?
• Re-evaluation of the focus on rivalry and competition?

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Conclusions
• Strategy is a discipline that contains many different perspectives
• Strategic processes are complex and can be examined from
different perspectives
• Traditional strategic theory speaks about:
• Organisational resources
• Desired market positions
• Environmental pressures
• Industry conditions
• Manager’s values and aspirations
• Stakeholder pressures
• Organisational control requirements….

• Can we add to this list or change this thinking?

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References and
Key readings for this lecture are: further readings
•Mintzberg, Ahlstrand and Lampel (1999) Strategy Safari, London: Prentice Hall.
•Hoskinsson, R., Hitt, M., Wan, W. and Yiu, D. (1999). Theory and research in strategic
management: Swings of a pendulum, Journal of Management, 25/3: 417-456.
Other useful readings:
•Andrews, K. 1971. The concepts of corporate strategy. Homewood, IL: Dow Jones-
Irwin.
•Ansoff, H. I. 1965. Corporate strategy. New York: McGraw Hill.
•Chandler, A. D. 1962. Strategy and structure. Cambridge, MA: MIT Press.
•Learned, E. P., Christensen, C. R., Andrews, K. R., & Guth, W. D. 1965/1969. Business
Policy: Text and Case (rev. ed.). Homewood, IL: Richard D. Irwin.Penrose, E. T. 1959.
The theory of the growth of the firm. New York: Wiley.
•Porter, M. E. 1991. Towards a dynamic theory of strategy. Strategic Management
Journal, 12 (Special Issue): 95–117.
•Porter, M. E. 1996. What is strategy? Harvard Business Review, 74 (6): 61–78.
•Porter, M. E. 1998. Clusters and the new economics of competition. Harvard Business
Review, 76 (6): 77–90.
•Williamson, O. E. 1975. Markets and hierarchies. New York: Free Press.
•Williamson, O. E. 1985. The economic institutions of capitalism. New York: Free Press.
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