What is strategy?

1. What is strategy? After studying this topic you should be able to: Outline the historical development of the ‘strategic management’ discipline Explain a range of contemporary perspectives on the nature of ‘strategic’ management; Understand the content and purpose of each element of the strategy process.

2. Strategy defined(see http://home.att.net/~nickols/strategy_definition.htm ) "Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities." Kenneth Andrews (1980) The Concept of Corporate Strategy p.18 “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 competences with the aim of fulfilling stakeholder expectations” Johnson et al (2005) Exploring Corporate Strategy p.9

3. Key elements of strategy CONTENT (The ‘what’ of strategy) • It determines scope of an organisation’s activities • It determines the long-term direction • It clarifies why the organisation exists (mission) and who for (shareholders vs. stakeholders) • It involves broad decisions about themix and use of resources • Competitive advantage is an essential aim of strategy PROCESS (The ‘how’ of strategy) • Strategy operates at different levels in an organisation (corporate, business and operational) • It is dynamic and evolves over time (‘emergent strategy’) as environmental conditions change. • It is not synonymous with formal planning

4. Brief History of Strategy Discipline(see Chapter 1 of Contemporary Strategy Analysis by Robert M Grant) • General management theory developed in response to the emergence of large industrial organisations in Europe and the US in the early 20th century. • Key early contributors were: • Frederick Taylor – scientific management • Henri Fayol administration • Elton Mayo – motivation (Hawthorne experiments) • Max Weber – bureaucracy and structure • (see http://www.kernsanalysis.com/sjsu/ise250/history.htm)

5. Brief History of Strategy Discipline • Fuelled by the consumer boom of the 1950s and 60s, organisations grew in size and became more internationalised. This increased scale led to concerns for more effective long-term planning, co-ordination and capital budgeting. • The need to extend the planning horizon lead to the development of formal corporate planning systems in large organisations in the 1960s. Typically, these systems produced detailed 5 year plans based on numeric analysis of economic (costs) and market forecasts (demand) containing precise objectives and plans.

6. History of strategy cont’d…. • In the early 1970s, the competitive landscape began to get more congested and so firms became concerned with issues of diversification as they sought new sources of revenue growth. This was the peak of formal planning with significant resources devoted to elaborate planning by specialist planning departments. • In the late 1970s three factors undermined confidence in formal planning. Firstly, the results of diversification were frequently disappointing. Secondly, economic instability was generated by the oil price shocks of 1974 and 1979. Thirdly, the growth of international competition especially from Japan and SE Asia.

7. History of strategy cont’d…. • In response firms became more concerned with ‘positioning’ their organisations favourably in the competitive landscape. The focus was on targeting, product positioning, segmentation, and product development. ‘Strategic planning’ gave way to ‘strategic management’ where the emphasis was on a broader range of competitive issues and less certain of environmental stability/predictability. (Porter, 1980, 1996)

8. History of strategy cont’d • In the late 1980s and 1990s, difficulties in sustaining competitive advantage saw an increased focus on internal resources and competencies as firms sought new ways to enhance profits. This major shift is often referred to as the Resource Based View (RBV) of strategy. (Hamel and Prahalad, 1994). This trend has continued with a focus on intangible resources in particular (especially “knowledge

9. History of strategy cont’d • The period from the mid 90s to the year 2008 was characterised by the emergence of new economic powers. China and India became major players and there was strong econmic growth throughout the world. .

10. History of strategy cont’d • The year 2008 Lehman Brothers bank collapsed leading to the nationalisation of banks in America and Europe, triggering a world wide recession. There has not been a recovery in the west with the Euro being particularly affected In 2011 there were still fears of a double dip recession and by 2013 austerity programmmes are still continuing.

11. History of strategy cont’d • BRIC has been replaced by a new acronym CHIME • later • MINT Malaysia India Nigeria and Turkey

12. Levels of Strategy Corporate Strategy Focus: Portfolio management, diversification, corporate parenting. Other Business Units Business Unit Strategy Focus: what product groups, segments, positioning and bases of competition to adopt. Other functional plans Marketing plan Focus: executing the decisions made above by translating them into detailed plans with budgets, etc. and implementing them.

13. Strategic checklist

14. The Strategy Development Process External Environment Analysis Business Mission Action Programmes Strategy selection Implementation Objectives Internal Environment Analysis Feedback and Control

15. Simplified Strategy Process • STRATGEGIC ANALYSIS (Where are we now?) • External analysis addresses the question: what challenges does our organisation face from its environment? • Internal analysis addresses the question: Does our organisation have the resources and capabilities needed to meet its challenges? • STRATEGIC CHOICE (Where do we want to be?) • Corporate level: what business should we be in? • Business level: what positioning maximises profits? • STRATEGY IMPLEMENTATION (How do we get there?) • Hard issues: planning, budgeting, restructuring, systems implementation, product/service development • Soft issues: consensus building, politicking, conflict management, HR issues, culture change, etc. • STRATEGIC CONTROL (Are we making good progress?) • Data gathering, variance analysis, evaluation, corrective action.

16. CHOICE ANALYSIS IMPLEMENTATION Strategy process: Not linear, recursive! Strategy development can start at any stage and regularly loops back on other stages to update, review and/or amend thinking

17. Intended vs. Emergent strategy (Mintzberg and Waters, 1985) INTENDED STRATEGY DELIBERATE SRATEGY REALISED STRATEGY Unrealised elements Emergent elements

18. Strategy is often a compromise Strategy development is not a neat and tidy process approached with objective rationality by managers following a checklist of stages. Many factors influence its development - to a greater or lesser degree depending on the organisation in question. Influences on Strategy Development Culture Planning Logical Incrementalism Command Politics Enforced choice Source: Johnson and Scholes (1999) 5th edition

19. The strategy lenses summary Table C.ii A summary of the strategy lenses

20. Strategy Development: Schools of Thought (1)* Planning/Positioning School • STRATEGY PROCESS • Development and Implementation are related but separated • Numerically oriented analysis favoured • Actors are seen as rational objective decision makers. • Top-down. • Environmental analysis drives strategic choice • Positioning in terms of activities performed, customer needs or customer access (Porter, 1996). • Contributors: Igor Ansoff, Michael Porter, Kenneth Andrews, Roland Christensen, Alfred Chandler, Kenichi Ohmae. * Note these schools are not mutually exclusive and will overlap in reality.

21. Strategy Development: Schools of Thought (2) Logical Incrementalist/Resource Based View (RBV) • STRATEGY PROCESS • Opportunistic approach to strategy, i.e. seek flexibility to respond to emerging profit opportunities. • Top-down/bottom-up process, i.e. good ideas can come from anywhere not just the top. • Decision makers ‘boundedly rational’ (cf Herbert Simon) • Internal resources and capabilities drive content of strategy, i.e. work to your strengths • Take up market positions that lend themselves to what you are good at. • Contributors: Birger Wernerfelt,Jay Barney,Henry Mintzberg, James Quinn, Gary Hamel, C K Prahalad,.

22. Strategy in Different Contexts • Small business • Dominant issues are market intelligence, growth and meeting expectations of founders. • Multinational Corporations • Dominated by need to sustain profits through diverse business portfolio, complex organisations makes strategy difficult to implement, external shareholder expectations critical.

23. Strategy in Different Contexts • Professional Service Firms • Key issues: the expectations and standards of professionals, the powerful influence of internal stakeholders (e.g. partners), increasingly, competitive positioning • Public sector • Key issues involve: public sector culture (service, public good, value), political imperatives (locan and central gov’t), complex stakeholder structure, constraints on action (gov’t regulations).