IDENTIFYING STRATEGIC MANAGEMENT CONCEPTS BY ANALYZING THE

RELATIONSHIPS AMONG THEM: AN ANALYTIC NETWORK PROCESS APPROACH

Umut Asan1, Ayberk Soyer2*

1
Technical University Berlin, Institute of Business Administration, Chair of Marketing, Germany
Tel.: 0049 30 31425281 Fax: 0049 30 31422664 E-Mail: asanu@marketing-trommsdorff.de
2
Istanbul Technical University, Department of Industrial Engineering, Macka, Istanbul, Turkey
Tel.: 0090 212 2931300/2057(ext.) Fax: 0090 212 2407260 E-Mail: ayberk@itu.edu.tr
* Corresponding author

Abstract: This paper presents an approach to identify strategic management concepts (SMCs) -mission,
vision, values and core competences- vital for organizations. The highly qualitative relationships among
SMCs are operationalized using the Analytical Network Process (ANP) approach. The proposed ANP
approach has been applied to the Industrial Engineering Department (IED) of Istanbul Technical University
(ITU).

Keywords: Analytic network process, Core competences, Mission, Values, Vision

Introduction
In the strategy research, the importance of strategic management concepts has long been discussed and
recognized to hold the potential to lead to business success. This paper focuses on the question how
companies can identify SMCs in the light of the relationships among them. Herein, the focusing on SMCs as
units of analysis is justified by quoting first the representative definition of a concept. Applying Ghauri and
Gronhaug (2002), concepts are herein defined as being the building blocks of any theory or model in
strategic management research. “A SMC serves as (a) a foundation of a meaningful communication, (b) a
perspective or a way of looking at the empirical construction-related business-management world, (c) a
means of classifying and generalizing business-management situations and (d) a component of a theory or a
model and thus of an explanation, prediction, or prescription” (Huovinen, 2005).
In particular, each SMC can be imagined as a piece of the strategy puzzle; it is important to assemble these
pieces in order to see the whole picture. This is only possible when the relations among the SMCs are well
defined which is the essential rule of integration. Critical reflections on the characteristics of these SMCs and
on their assembly may offer a better insight into basic strategy processes. The SMCs dealt with in this study
and their definitions are given in Table 1.

Table 1 Definitions of the SMCs

SMC Definition
Values Values are a set of timeless guiding principles pointing out what is important for an
organization (Collins and Porras, 1996).
Core Competence is the ability of an organization to sustain coordinated deployments of
Competences resources and capabilities in ways that help a firm achieve its goals (Sanchez, 2001).
Mission The organization’s most fundamental reason for existence (Collins and Porras, 1996).
Scenario Stories of how the future might unfold in terms of all possible and desirable futures.
Vision Vision is the desired future position of a company (Raynor, 1998).

The framework
Conceptual frameworks are the researcher’s first cut at making some explicit theoretical statements (Miles
and Huberman, 1994). In general, frameworks deal with greater complexity in a less rigorous manner and are
open to opinion and judgment. Designing such a framework must start with describing the fundamental

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relationships among the concepts. However, not all the interactions among the many concepts in the
frameworks can be rigorously drawn (Huovinen, 2005).
To assess the relationships among the SMCs we extend prior work by Asan, Soyer and Polat (2002) that
proposed an integrated framework for developing SMCs. That prior work adapts Raynor’s (1998) framework
by incorporating future scenarios. The framework used in this paper is given in Figure 1. The relationships
inherent in this framework can be summarized as follows: The mission should emerge from a broad
understanding of a company’s core competences, but applied in a way consistent with the companies values
(Raynor, 1998). Also it is important that an organization should have competences those lead it to enter into
every scenario and know which competences will be essential in the future and which new competences will
emerge (Polat and Asan, 2005). Besides, scenarios emphasize different ways in which the future might
evolve, as a stimulus to thinking creatively about different, more stretching visions for the organizations
(Wilson, 1992). In other words, vision must be seen as the result of understanding possible futures, which
will impact the success of the vision. Thinking vision as an articulated goal (Collins and Porras, 1996), once
you have attained this goal, core purpose will act as a compass to define a new direction on which the new
vision will be directed towards. So the core purpose will be the star on the horizon to be chased forever
whereas the vision will be the mountain to be climbed. Once you have reached its summit, you should move
on the other mountains (Collins and Porras, 1996).

VISION SCENARIOS

MISSION
ESPOUSED (CORE PURPOSE)
CORE
VALUES CORE
COMPETENCES
VALUES

Figure 1 An integrated conceptual framework for SMCs development (cf. Asan, Soyer and Polat, 2002)

The proposed analytical network process (ANP) approach

The highly qualitative relationships inherent in the framework, mentioned above, are operationalized using
the ANP approach in which relative measurements of the influence of elements is used to derive priority
ratio scales (Saaty, 1996). Figure 2 provides a schematic representation of the constructed ANP model
illustrating bidirectional outer dependence (Saaty, 1986) among components (SMCs) where the elements
(SMC alternatives) of each component are assumed to be independent. The sample questions in making
comparisons of SMC alternatives may be:
• In identifying an organizations SMCs, given the vision statement, which of the two mission statements is
more likely; and how much more?
• In identifying an organizations SMCs, given the mission statement, which of the two vision statements is
more preferable; and how much more?

These kinds of preference questions and answers, in both directions, help us establish our true priorities for
all the elements in the problem. As ANP captures the outcome of dependence and feedback within and
between clusters of elements, the proposed approach enables us to handle indirect relationships and complex
interactions existing among the SMCs.
Since the alternatives of the SMCs needs to be developed a priori, the ANP model basically plays a
complementary role. The process of ANP comprises four major steps (Saaty, 1996; Meade and Sarkis, 1999;
Chung, Lee and Pearn, 2005).

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 Figure 2 The proposed ANP model

Step 1: Model construction and problem structuring

The problem should be stated clearly and decomposed into a rational system like a network.
Step 2: Pairwise comparisons matrices and priority vectors
Decision makers are asked to respond to a series of pairwise comparisons where two elements or two
components at a time will be compared in terms of how they contribute to their particular upper level
criterion (Meade and Sarkis, 1999). In addition, if there are interdependencies among elements of a
component, pairwise comparisons also need to be created and an eigenvector can be obtained for each
element to show the influence of other elements on it. The relative importance values are determined with a
scale of 1 to 9, where a score of 1 represents equal importance between the two elements and a score of 9
indicates the extreme importance of one element (row component in the matrix) compared to the other one
(column component in the matrix) (Meade and Sarkis, 1999). A reciprocal value is assigned to the inverse
comparison; that is, a ij = 1 / a ji , where a ij ( a ji ) denotes the importance of the ith (jth) element compared to
the jth (ith) element. Pairwise comparison in ANP is made in the framework of a matrix and a local priority
vector can be derived as an estimate of relative importance associated with the elements (or components)
being compared by solving the following equation:
A ⋅ w = λ max ⋅ w (1)
where A is the matrix of pairwise comparison, w is the eigenvector and ? max is the largest eigenvalue of A.
Saaty (1980) proposes several algorithms for approximating w; in this paper the power method have been
used. Priority vectors must be derived for all comparison matrices.
Step 3: Supermatrix formation
The supermatrix concept is similar to the Markov chain process (Saaty, 1996). To obtain global priorities in a
system with interdependent influences, the local priority vectors are entered in the appropriate columns of a
matrix, known as a supermatrix. As a result, a supermatrix is actually a partitioned matrix, where each matrix
segment represents a relationship between two nodes (components or clusters) in a system (Meade and

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Sarkis, 1999). This matrix is column stochastic as all its columns sum to unity. Saaty (1996) suggested
Supermatrix for solving network structure. The supermatrix representation of our model is as follows:
Vi M Sc C Va
Visions (Vi) 0 WViM WViSc 0 0 
W 0 0 WMC WMVa 
Missions (M)  MVi
W= (2)
Scenarios (Sc) WScVi 0 0 WScC 0 
 
Competences (C)  0 WCM WCSc 0 0 
 0 0 
Values (Va)  WVaM 0 0

W13 is a matrix that represents the preference of each vision with respect to a mission statement, i.e., it
represents the impact of a mission statement on each of the visions and entries of zeros correspond to those
elements that have no influence.
Since there usually is interdependence among clusters in a network, the columns of a supermatrix usually
sum to more than one. The supermatrix must be transformed first to make it stochastic, that is, each column
of the matrix sums to unity (i.e., weighted supermatrix). Raising a matrix to powers gives the long-term
relative influences of the elements on each other. To achieve a convergence on the importance weights, the
weighted supermatrix is raised to the power of 2k+1 ( lim k →∞ A 2 k +1 ); where k is an arbitrarily large number
and this new matrix is called the limit supermatrix (Saaty, 1996). The limit supermatrix has the same form as
the weighted supermatrix, but all the columns of the limit supermatrix are the same. By normalizing each
block of this supermatrix, the final priorities of all the elements in the matrix can be obtained.
Step 4: Selection of best alternatives
If the supermatrix formed in Step 3 covers the whole network, which is the case in our paper, the priority
weights of the concept alternatives can be found in the relevant columns of the normalized limit supermatrix.
The resulting concept alternatives from the ANP model with the highest priority levels should be selected to
constitute the most effective SMC set for a particular organization.
The Bottom up and Top down Approaches
Beside the effective SMC set, identified by using the SMCs developed a priori and the pairwise comparisons
in the proposed ANP model, alternative concept sets are analyzed from two different perspectives -
explorative and normative. As the ANP is a descriptive, not a normative, theory (Saaty, 2005; 1997), these
two perspectives refer to complementary interpretations of the results not to the measurement itself. The
explorative perspective indicates a bottom up treatment where only common values and core competences
held by the organization are used to identify the possible corresponding mission and vision statements. On
the other hand the normative perspective indicates a top down treatment where the necessary values and core
competences are determined according to a given desired vision statement. Since particular subsets of the
“values and competences” and “visions” are considered in the bottom up and top down perspectives
respectively, the priorities of the SMCs will differ from the limit supermatrix of the complete ANP model.
This assumes that “it is not reasonable to force rank preservation all the time” (Saaty, 2005). According to
these perspectives, the approximation of the priority values of the SMCs is calculated as given in Figure 3.

Application
The ANP approach presented here has been applied to the Industrial Engineering Department (IED) of
Istanbul Technical University (ITU) that was interested in identifying its SMCs. According to the scope of
the study, a planning group was formed including experts with different academic titles; one professor, one
associate professor, one assistant professor and two research assistants. Here, the term expert may be defined
as all those, whose opinions may be useful to judge the relationships among the SMCs. To construct the
network, we adopted the SMC alternatives identified for the IED of ITU in two previous studies (Soyer and
Asan, 2003; Asan, Soyer and Polat, 2002). For the values component two types of alternatives are examined:
current values that are common in the organization and desired values that should be common in the
organization. Also the competences component consists of core and non-core competences. The SMC
alternatives are given in Table 2. Structured discussions among the experts and ensuing pairwise
comparisons formed the nature of the workshop, which lasted approximately 5 hours.

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 Top-down Approach
Priorities of Values:
wM = wSelected Vi × WSelected
T
MVi
Bottom-up Approach
Priorities of Visions:
wM1 = wSelected Va × WSelected
T
MVa

wVa = wM × WVaM
T
(3) wM 2 = wSelected C × WMC
T

wM = wM1 + wM 2
Priorities of Competences:
wSc = wSelected Vi × WSelected
T wVi1 = wM × WViM
T
ScVi

wC1 = wSc × WCSc

T wSc = wSelected C × WSelected
T
ScC

wC2 = wM × WCM
T wVi2 = wSc × WViSc
T

wC = wC1 + wC2 (4) wVi = wVi1 + wVi2 (5)

Where,
wi : priority vector of concept i
Wij : priority matrix representing the impact of concept i on concept j
i, j = {Vi, M, Sc, C, Va}
Figure 3 Calculations of the priority values according to the top-down and bottom-up approaches

The quality of ultimate decision of the ANP is strongly related to the consistency of judgments (Anderson,
Sweeney and William, 1997) that decision makers demonstrated during the series of pairwise comparisons.
Judgment consistency can be checked by taking the consistency ratio (CR). Saaty (1980, 1988) has suggested
that the maximum allowable CR should be in the neighborhood of 0.10. When the calculated CR values
exceed the threshold, it is an indication of inconsistent judgment. In this study the inconsistent judgments in
the pairwise comparison matrices were revised, such that the resulting CRs varies from 0 to 0.0989, which is
within tolerable limit.
Since the supermatrix formed is irreducible and primitive the global priority weights of the concept
alternatives can be found in the relevant columns of the normalized limit supermatrix. The SMC alternatives
with the highest priority levels constitute the most effective SMC set for the organization. The global
priorities normalized by cluster and the effective set are given in Table 2. For example, within the given set
of alternatives the mission statement “Make the major contribution to the development of applied sciences
and industry in Turkey” with a priority value of 0.601 is more preferable (likely). Assuming that all value
and core competence alternatives are common in the organization and each scenario has the same possibility,
the effective SMC set indicates the concept alternatives which are strongly connected to other alternatives in
the network and are more likely to be realized. However, as the components values and core competences
also include desired and non-core alternatives the effective set is not absolutely realizable in the short-term.
This implies the difficulty to make a final decision by only relying on the effective set. Therefore, to support
the final decision on the SMC set we suggest applying the top-down and the bottom-up approaches. Together
with the effective set, the SMC sets resulting from these approaches (“Top-down Set” and “Bottom-up Set”)
are given in Table 2. From the bottom-up perspective the common values and core competences held by the
IED of ITU are used to identify the corresponding mission and vision statements. For example, according to
the calculated approximation of the priority values, both mission statements have a high priority and are
selected to constitute the bottom-up set. On the other hand from the top-down perspective, the values and the
core competences required to realize the desired vision statements -“Guide industrial organizations” and “Be
a worldwide-accepted industrial engineering department”- are determined. As a result, the SMC alternatives
with the highest priority values in these two perspectives constitute the bottom-up and top-down sets
respectively, referring to complementary interpretations of the results.
Finally, in view of the effective, bottom-up and top-down sets, a final SMC set has been suggested for the
IED of ITU (See Table 2). The concept alternatives included in all sets are chosen as the final SMC set. The
mission statement “Make the most contribution to the development of national science” is chosen for the
final SMC set, because it is in the effective set and can be realized by the values and core competences held
by the department. According to the results, not all the values and core competences needed to realize the

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selected vision and mission statements in the final set are common in the department. For example, the core
competence “industry orientation” and the values “creativity”, “initiative”, “diligence”, “cooperation” and
“adaptability” are not common in the department. So, to be successful in the long-term the organization
should focus on these necessary concepts.

Table 2 The global priority values of the SMCs (in descending order) and comparison of the proposed
perspectives
Limiting
Priorities Effective Top-down Bottom-up
Strategic Management Concept Alternatives Final Set
Normalized Set Set Set
By Cluster
Vision
Make the most contribution to the development of national science * 0.245 x x x
Guide industrial organizations * 0.233 x x x x
Be a worldwide-accepted industrial engineering department 0.176 x x
Train world-class industrial engineers 0.168 x
Be a pioneer in the national industrial engineering platform 0.127
Attract the best outstanding students 0.052
Mission
Make the major contribution to the development of applied sciences and
industry in Turkey * 0.601 x x x x
Prepare our students for business life by giving them application oriented
industrial engineering formation. 0.399 x
Scenario
Science * 0.458
Sheep 0.307
Government 0.144
SOS 0.092
Core Competences
Self-improvement * 0.336 x x c x
Industry applied projects * 0.198 x x c x
Industry orientation * 0.197 x x
Provide distinctive facilities 0.130
Practice oriented education 0.088 c
Offering course variety 0.051
Values
Development * 0.149 x x c x
Logic * 0.134 x x c x
Creativity * 0.128 x x
Initiative * 0.103 x x
Diligence * 0.085 x x
Cooperation * 0.084 x x
Adaptability * 0.064 x
Broad-Mindedness 0.047
Formality 0.042 c
Moral Integrity 0.026 c
Openness 0.022
Social Equality 0.021
Obedience 0.020 c
Fairness 0.018 c
Cautiousness 0.014 c
Consideration 0.012 c
Courtesy 0.012 c
Forgiveness 0.011 c
Economy 0.008 c
*: indicates the effective SMCs set
c: common or core at the IED
x: indicates the selected SMC alternatives

Conclusion
Vision, mission, values and competences are important SMCs and deserve to be treated seriously. Although
approaching the identification of the SMCs requires the executives to understand comprehensively the
relationships among them, they are generally ignored or implicitly considered. This article is intended to
provide an approach that enables to analyze relationships and complex interactions existing among the SMCs
and supports the decision on the final SMC set. Accordingly an ANP model is constructed and two
complementary approaches, top-down and bottom-up, are developed to analyze the relationships. Each SMC
alternative’s priority is calculated through its (direct and indirect) relationship with other concepts. The

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proposed approach is demonstrated by an application at the Industrial Engineering Department of Istanbul
Technical University.

The pros and cons of the ANP approach can be summarized respectively as follows. The highly intuitive
relationships inherent in the conceptual framework are operationalized using relative measurements. It
allows for the consideration of complex and indirect interrelationships among the SMCs. The approach
implies collective participation and structured discussions of a variety of experts and provides a measure of
consistency that enables to improve the overall consistency of the judgments. The top-down and bottom up
approaches provide results for subsets of alternatives (e.g. desired vision, common values and core
competences) that support the final decision SMC set. On the other hand, the proposed ANP approach
basically plays a complementary role and the alternatives for the SMCs, hence, needs to be developed a
priori. The high number of comparisons required to develop the judgment matrices is probably the most
important disadvantage of the proposed approach.

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