THE CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT G Tyge Payne PhD 1 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 2 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 other s 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 3 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 1800 s that tactics involve the use of armed forces in the engagement strategy is the use of engagements for the objects of war 4 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 wasn t until the 1950 s 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 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 6 Porter s 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 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 virtual Corporate Diversification Restructuring Alliances planning depts Global strategies Reengineering networks created Rise of Matrix structures Refocusing Self organiz corporate Outsourcing ation planning 2000s organization 7 Ansoff s 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 organization s business corporate strategy 8 BCG s Growth Share Matrix High Share Low Share High Growth Star Question Mark Slow Growth Cash Cow Bark Dog 9 In St tend ra ed te g y Forms of Strategy Mintzberg s Mintzberg sCritique 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 y Realized Strategy Normally emergent strategy comes from learning and dissemination within the organization 10 Porter s 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