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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 1800s that
tactics[involve] the use of armed forces in the
engagement, strategy [is] the use of engagements for the
objects of war.
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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)
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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).
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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 Levitts 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 firms 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 & Companys development of SBUs and the nine-block matrix.

Mintzbergs Deliberate, Emergent & Realized Strategies

Porters Generic Strategies


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Ansoffs Product / Mission Matrix*

Present
Mission

New
Mission

Present
Product

New
Product

Market
Penetration

Product
Development

Market
Development

Diversification

*Categories define the common thread in an organizations business/corporate


strategy.
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BCGs Growth-Share Matrix

High
Growth

Slow
Growth

High
Share

Low
Share

Star

Question
Mark

Cash
Cow

Dog

In
St ten
ra de
te d
gy

Forms of Strategy

De
l ib
er

at e

St

ra

teg
y

Realized
Strategy

Unrealized
Strategy

Emergent
Strategy

**Normally
**Normallyemergent
emergentstrategy
strategycomes
comesfrom
from
learning
learningand
anddissemination
disseminationwithin
withinthe
theorganization.
organization.
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Sources of Superior Profitability


INDUSTRY
ATTRACTIVENESS

RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL

Which industries
should we be in?

CORPORATE
STRATEGY

How do we make
money?
COMPETITIVE
ADVANTAGE

How should we
compete?

BUSINESS
STRATEGY
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Porters 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
Strategy3B
3B

Differentiation
Differentiation
Focus
Focus

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Why Are Strategies Needed ?

To proactively shape how a companys 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.

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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 doesnt guarantee it


certain features of strategy directly contribute to success:
1. Goals that are simple, consistent, and long-term.
2. Profound understanding of the competitive environment.
3. Objective appraisal of resources.
4. 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.
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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 competitorsor
the establishment of sustainable competitive advantage over rivals.
The study of strategy involves how we go about identifying,
establishing, and sustaining competitive advantage.

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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?

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The Strategy Concept


Key Elements
Performance

Strategic Control

Strategy
Formulation

Environment

Strategy

Strategy
Implementation

Organization

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The Strategy Concept


Levels of Analysis

Where to Compete?

Corporate
Strategy

How to Compete?

Business
Strategy

How to Contribute?

Functional
Strategy

Choice of Products
Choice of Markets
Choice of Competitors
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The Strategy Concept


Sources or Drivers of Strategy
Mission

Vision

Goals

Objectives

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The Evolution of Strategic Management

THEME &
ISSUES

CONCEPTS/
TECHNIQUES

IMPLEMENTATIONS

1950s

1960s

1970s

1980s

early
1990s

late
1990s

Financial
planning &
control

Corporate
planning

Corporate
strategy

Positioning

Quest for
competitive
advantage &
shareholder
value

Strategic
innovation

Budgeting
project appraisal

Forecasting &
investment
planning

Portfolio
planning.
Synergy
market
share

Analysis of
industry &
competition

Resource
analysis.
Case
competencies

Dynamic
sources of
advantage
Knowledge
management
cooperation

Emphasis on
financial

The rise of
Diversificorporate planning cation.

Industry and
market select-

Restructuring
BPR.

Virtual organization.

management

departments
& formal
planning

Refocussing
Outsourcing

Alliances
competing
for the future

Quest for
ivity. Active
global
asset
market share management

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