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.

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.

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.”

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)

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).

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

Ansoff’s Product / Mission Matrix* Present Product New Product Market Penetration Product Development Present Mission Market Development Diversification New Mission *Categories define the common thread in an organization’s business/corporate strategy.

BCG’s Growth-Share Matrix Star Question Mark Cash Cow Dog High Share Low Growth Slow

Forms of Strategy **Normally emergent strategy comes from Intended Strategy Deliberate Strategy Realized Strategy Unrealized Strategy **Normally emergent strategy comes from learning and dissemination within the organization. Emergent Strategy

Sources of Superior Profitability INDUSTRY ATTRACTIVENESS CORPORATE STRATEGY Which industries should we be in? RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money? COMPETITIVE ADVANTAGE How should we compete? BUSINESS STRATEGY 16

Porter’s Generic Strategies Strategy 1 Cost Leadership Strategy 2 Differentiation Strategy 3A Cost Focus Strategy 3B Focus Competitive Advantage Lower Cost Differentiation Competitive Scope Broad Target Narrow

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.

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: 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.

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.

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?

The Strategy Concept Key Elements Performance Strategic Control Strategy Strategy Implementation Strategy Formulation Environment Organization

The Strategy Concept Levels of Analysis Where to Compete? How to Compete? How to Contribute?

The Strategy Concept Sources or Drivers of Strategy Mission Vision Goals Objectives

The Evolution of Strategic Management 1950s 1960s 1970s 1980s early late 1990s 1990s Financial Corporate Corporate Positioning Quest for Strategic planning & planning strategy competitive innovation control advantage & shareholder value Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of planning Synergy competition Case advantage market competencies Knowledge share management cooperation Emphasis on The rise of Diversifi- Industry and Restructuring Virtual orga- financial corporate planning cation. market select- BPR. nization. management departments Quest for ivity. Active Refocussing Alliances & formal global asset Outsourcing competing planning market share management for the future THEME & ISSUES CONCEPTS/ TECHNIQ- UES IMPLEMENT- ATIONS 7