UNIT 2: THE CONCEPT OF STRATEGY

1. UNIT 2:THE CONCEPT OF STRATEGY

2. A. Definition “Strategy is the direction and scope of an organization 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 Scholes & Whittington, 2008)

3. In other words, strategy is about: •  Where is the business trying to get to in the long-term (direction) • Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope) • How can the business perform better than the competition in those markets? (advantage)? • What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)? • What external, environmental factors affect the businesses' ability to compete? (environment)? • What are the values and expectations of those who have power in and around the business? (stakeholders)

4. Strategic decisions are about: • The long-term direction of an organization • The scope of an organization’s activities • Gaining advantage over competitors • Addressing changes in the business environment • Building on resources and competences (capabilities) • Values and expectations of stakeholders

5. Therefore they are likely to: • Be complex in nature • Be made in situations of uncertainty • Affect operational decisions • Require an integrated approach (both inside and outside an organization) • Involve considerable change

6. B. Characteristics • Business domain • Scope of an organization’s activities. • Product/market scope. • What the organization will do and what it will not do.

7. Long term direction of an organization • Where are we going? • Organizational vision

8. Strategic fit • Matching of the activities of an organization to the environment. • Environment dependence

9. Competitive advantage • Basis for attracting customers • Cost leadership • Differentiation • Focus - Positioning

10. C. Strategy • Company strategies are concerned with: • How to grow the business • How to satisfy customers • How to out compete rivals • How to manage each functional area • To develop requisite capabilities • How to achieve company objectives

11. Strategy • Strategy is partly proactive and partly reactive • Proactive actions to improve performance • Reactions to unforeseen developments

12. D. Levels • Corporate strategy • Overall purpose and scope of the business to meet stakeholder expectations • Overall business domain • Corporate resource allocation • Value addition to the different parts of the organization • (“2+2=5”); Out sourcing; core business) • Principal focus → Effectiveness

13. Business strategy • Competition with other business in the market • Achievement of competitive advantage • Focus on the “strategic Business Unit (SBU) • SBU-Part of the organization for which there is a distinct market for goods and services • Note: Distinct markets require different strategies. - Principal focus →Effectiveness

14. Functional (Operational) strategy • How the various functional areas contribute to achieving business and corporate strategy. • Organizational processes • Principal focus →Efficiency

15. “Without strategy, the organization is like a ship without a rudder, going around in circles”.