strategy

Strategy is an ambiguous term due to its multiple definitionsnew and application to diverse activities of the enterprise. What follows seeks to objectively cover the territory in order to inform the reader, as opposed to drive home a particular view.

About Strategy --

1. Reason for strategy is to gain and renew competitive advantage to sustain it indefinitely
2. Strategy requires understanding the concepts of business and advantage
3. Strategy requires understanding the phenomena of the business ecosystem, organizing activities, organizations, and people
4. Strategy is both an activity, to create a strategy, and an outcome, the behavior and path taken by the organization
5. Strategy deployment is both the deployment activities and the offerings, businesses, capabilities, etc. resulting from the deployment.

Objective of strategy --
The objective of strategy is to produce a competitive advantage -- i.e. create imperfect competition (Hamel, 2000). This advantage is not a one-time win, as in a battle against a particular foe, but a long-term organizational advantage relative to the dynamic population of all organizations. Competitive advantage is generally conceptualized as the implementation of a strategy not currently being implemented by other firms that facilitates the (1) reduction of costs, (2) the exploitation of market opportunities, and/or (3) the neutralization of competitive threats (Barney, 1991). It is the combination of resources and capabilities that are rare and valuable deployed to produce advantage that results in economic rents, i.e. a performance advantage.

The objective of strategy is not setting performance objectives, per se, as the means to inspire performance, but the pursuit of purpose that inspires lofty goals be set. It is not about taking on competitors head-on but developing unique value in pursuit of purpose, value that draws customers to an offering. Strategy is not about optimization of what already exists, but about the creation of novelty and new technology.

Concise Definition of Strategy -- In its simplest terms, strategy is about two things: deciding where you want your business to go and figuring out how to get there. (""Making Strategy,"" Economist, March 1, 1997).

Andrews' concise definition of strategic management -- ...what a company might do in terms of environmental opportunity, of deciding what it can do in terms of ability and power, and of bringing these two considerations together in optimal equilibrium. (Andrews, 1971, p 19).

Scott & Davis Definition of Strategy -- (Scott & Davis, 2007, 317-318)
Chandler defines strategy as ""the determination of the basic long-range goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals"" (1962: 13). This widely accepted definition identifies several distinctive features of strategy.

First, the primary focus is on external concerns: the linkage of the organization to its environment.

Second, two types of goals are differentiated: (1) selection of domain-""What business or businesses shall we be in?-affected by the factors just described; and (2) selection of competitive stance-""How shall we compete in each business?"" (Chaffee, 1985).

• Porter (1980) has identified a number of ""generic"" competitive strategies among which firms may choose:
  • Overall cost leadership-producing in high volume and holding costs low relative to competitors or budgets
  • Differentiation-creating a product or service that is perceived industrywide as being unique, such as a design or brand image
  • Focus-emphasizing a particular buyer group, clientele, segment of the product or service line, or geographic market
• An alternative formulation is provided by Miles and Snow (1978; 1994), who identify three types of firms in terms of their dominant strategy:
• Prospectors-firms that anticipate and shape the development of the market through their own research and development efforts, focusing on innovative products and services
• Defenders-firms that wait until technologies and product designs have stabilized and focus on the development of process efficiencies
• Analyzers-firms that combine the prospector and defender strategies, creating a base of established products to which they add selected new products and services (1994: 12-14)

Third, as emphasized by natural system analysts, treatments of strategy- like all discussions of goals-often confuse intentions with actions, official with operational goals. To avoid this difficulty, Mintzberg (1987) suggests that distinctions be made between ""intended"" strategy (plans), ""emergent"" strategy (unplanned patterns of behavior), and ""realized"" strategy (actual behavior, whether planned or unplanned). Intended strategies may or may not be realized; realized strategies may be intended or emergent.

Fourth, many discussions presume that strategic decisions are made exclusively by executives high up in the organization. Indeed, as described in Chapter 9, Chandler and Williamson stress the value of segregating operational and strategic decisions and reserving the latter for top officials. By contrast, analysts such as Burgelman and Sayles (1986) propose a more incremental, bottom-up account, pointing out that innovations, including new products and processes, typically develop deep down in the research and production units of companies, acquire support from (are selected by) middle managers, and, after the fact, become recognized and legitimated by top executives. They insist that

[Middle managers'] initiatives, when successful, change the direction (s) and the strategic plans of the corporation. . . . Thus, relatively autonomous, unplanned initiatives from the operational and middle levels of the organization help to shape corporate strategy. (1986: 144)

Eccles and Crane (1988) make similar arguments with respect to investment banking, referring to a ""grassroots"" process of strategy formulation as individual investment bankers-""those closest to the markets""-make decisions which, within broad management constraints, determine business strategy (p. 49).

Finally, institutional scholars remind us that, like structures, the choice of a strategy is constrained by institutional forces (Scott, 2001a). There will exist a range of possible, recognizable, legitimate ways of competing that vary by society, sector, and time. How an organization selects its strategy is substantially affected by existing cultural-cognitive models, normative standards, and regulatory rules.

Areas of agreement in the fragmented field of strategy (Heracleous, (2003), Strategy and Organization - Realizing Strategic Management, pp 18-19) --

• Strategy concerns both the organization and its environment
• An effective strategy is important for the welfare of the organization
• The substance of strategy is complex, non-routine, and unstructured
• Its study involves issues of content, context, and process
• Strategies are not purely or simply deliberate; they can be intended but unrealized, or emergent
• Strategies exist at different levels - the corporate, business, and functional levels
• The development of strategies involves various thought processes, including both analytical and creative ones

Theories of strategy and the firm --
See strategy - theories of for the diverse views of what the driving forces of strategy are theorized to be and the link between organization theory and strategy.

Porter's criteria for a theory of strategy (Porter, 1991) --
See strategy theory criteria.

Strategy as a capability --
Strategic advantage is about organization capability. The capability of organizational change -- organization evolution that keeps the organization ahead of the creative destruction surrounding it, what Joseph Schumpeter describes as a dynamic disequilibrium brought on by the innovating entrepreneur.

Strategy includes new technology of all types, whether physical, social, or business design. Strategy is about entrepreneurship, with its practice of innovation - forming and reforming businesses based on innovation.

Strategy is about strategic management competency, the accompanying strategic management process, the competency to produce a business architecture develops both an advantage and a competency to sustain an advantage.

In the end, effective strategy is indicated by the ability to serve a customer group better than other organizations.

Strategy - a synthesis of multiple disciplines --
All strategy is organizational strategy, as strategy is about competitive advantage of an organization and the organization evolution necessary to achieve and sustain an advantage. Organizations are made up of people, people's behavior makes up organizational behavior, managers are people, strategies address the organization, and strategies require operational execution. For the purpose of understanding how to strategically manage an organization, there are not separable disciplines, such as strategy, individual behavior, organizational behavior, strategic management vs. operational management, etc., which can be addressed separately. These disciplines are aspects of strategy and synthesized into one discipline of strategic management.

Exploration and exploitation --
Strategy is about creative destruction -- about being a driver of this mechanism rather than its victim, about causing it rather than defending against it. To create competitive advantage, management practices must be put in place to explore, generating novelty and innovation, to evolve the organization. The causality behind the practices to explore must be consistent with spontaneous generation of novelty. At the same time, the business organization must add value, optimizing exploitation of its innovations. The causality behind the practices to exploit must be congruent with optimization. Strategic management, to be effective, must solve this paradox.

• ""The essence of exploitation is the refinement and extension of existing competencies, technologies, and paradigms. Its returns are positive, proximate, and predictable.""
• ""The essence of exploration is experimentation and new alternatives. Its returns are uncertain, distant, and often negative.""

-- Source: March, 1991

Inextricable link between organization and strategy --
Strategic management is carried out by people. People make up organizations. Therefore, organizations create strategy. Without understanding organizational action, there is little hope of understanding the making of strategy. Strategy is inextricably linked to organization, and as such processual rather than static, messy and ambiguous rather than clear-cut, socio-political rather than simply ""technological"" or sanitized, and located within local conditioned rationalities rather than universal rationalities."" (Heracleous, 2003, xiii). Strategic management itself cannot be separated from organizational change and development since the realization of strategic goals often involves the effective implementation of significant organizational change. See organizational theory for an examination of key elements of perspectives of organizations.

Link between organization and business --
Businesses add value to resources with the goal of making a profit. Organizations exist to carryout a business. Organizations form strategy. The strategy seeks to develop a superior business. Strategy is fully intertwined with both organization and business.

Inextricable link between strategy and environment --
The environment both shapes and is shaped by the business-organization. See contingency theory for an explanation of this link.

Rumelt's simple theory of strategy (Rumelt, 1981, 568) --
""...a firm's strategy may be explained in terms of the unexpected events that created (or will create) potential rents together with the isolating mechanisms that (will) act to preserve them. If either element of the explanation is missing, the analysis is inadequate.""

Pettigrew's strategic transformation view of strategy -- For an elaboration of the scope and substance of strategy in the context of strategic transformation, see the strategic transformation discussion by Pettigrew. The transformation of the firm is seen as an iterative, multilevel process, with outcomes emerging not merely as a product of rational or boundedly rational debates, but also shaped by the interests and commitments of individuals and groups, the forces of bureaucratic momentum, gross changes in the environment, and the manipulation of the structured context around decisions. Taking this view the focus of attention is on seeing change as a multilevel and continuous process in context, where leadership is expressed through understanding and tactical skill as well as the purposive force of mobilizing often imprecise and inarticulate visions, which are used to challenge dominating beliefs and institutional arrangements."" (Pettigrew, 1987, pp 658).

Statement of Strategy -- Collis, 2008 provides a guide for a concise statement of strategy.
A Statement of Strategy, identifies the three critical components of

• objective
• scope
• advantage

The statement itself is brief, typically one concise sentence for each of the critical components, but then augmented with detailed annotations that ""elucidate the strategy's nuances...and spell out its implications."" The Strategy Statement's most critical element is the statement of advantage with its two components -- a statement of customer value proposition and the unique activities allowing that firm alone to deliver the customer value proposition. See statement of strategy for more content. For more elaborate guides to strategy definition see ""Components of Strategy"" and ""Fundamental Dimensions of Strategy"" below

The process to prepare the statement, of course following the development of a great strategy, is rigorous and challenging. A concise, well thought out statement, provides guidance critical to the effective organizational pursuit of the strategy.

In the ""Hierarchy of Company Statements, Strategy fits as follows --

• Mission - Why we exist;
• Values - What we believe in and how we behave; and
• Vision - What we want to be
• Strategy - What our competitive game plan will be; its ends, domain, and means.

Business policy, strategy, resources, and tactics --
Generally, the term policy is regarded as an archaic term (1950s) for strategy or is eht equivalent of strategy for public organizations.

For an alternative view that distinguishes between policy and strategy, see policy.

The descriptions and discussions of strategy that follow do not differentiate between policy and strategy.

Systemic vs. complex responsive process views -- Ralph Stacey (2007) has developed classifications of strategies based on two radically different views of business organizations - the systemic process and the responsive processes views. At the current time, the first view is followed by the vast majority of strategy theorists and practitioners. The second view is clearly outside the bounds of traditional or mainstream management, but is based on sound science and philosophy and calls for serious consideration for effectively addressing organization evolution.

• Systemic view - organizations are 'as if' systems, these systems are external to the people forming them, and people are distinct from organizations.
• Strategic choice theory -- rational actors, analytic, prediction based
• Learning organization theory -- accounts for the negative feedback in the system, adjusting the organization for the negative feedback
• Psychodynamics theory -- an open systems and natural person view of the organization. The purpose of management as intervention aimed at enabling equilibrium adaptation to the organization's environment.
• Complex responsive process view -- this view focuses on microdiversity and the ongoing gesture-responses between individuals as both the source of stability that sustains the organization and the source of novelty that renews the organization.

definitionsnew of Strategy --

Common definition --
""A plan of action resulting from strategy or intended to accomplish a specific goal."" Notice that the wording of the definition above - a ""strategy"" is required to have a plan of action called a strategy!

Stanley Davis (1987) --

• Strategy is how a business actually competes. The purpose of developing a strategy is to gain a competitive advantage. The objective is to develop a competitive advantage which enables the firm to create superior value for its customers and superior profits for itself.
• Strategy defines the relationship of a company to its environment.
• Allows you to see your business and organization in the future, interpolate your way backward into the present reality, and then manage your implementation more powerfully.
• Strategy is the plan for future survival.

A pattern of decisions, Andrews (1987) --

• The pattern of goals and policies is the source of uniqueness that ideally should distinguish every company from its competitors.
• It is the unity, coherence, and internal consistency of a company's strategic decisions that position the company in its environment and give the firm its identity, its power to mobilize its strengths, and its likelihood of success in the marketplace.
• It is the interrelationship of a set of goals and policies that crystallizes, from the formless reality of a company's environment, a set of problems an organization can seize upon and solve.

Strategy as fit, Roberts (2004, p 12) --
Achieving high performance in a business results from establishing and maintaining fit among three elements - the strategy of the firm, its organizational design, and the environment in which it operates. See coherence.

Strategy components, Andrews (1987) --
Strategy formulation is the reconciliation of the four components of strategy into a final pattern of purpose.

• What a company might do - market opportunities.
• What a company can do - corporate competence and resource
• What a company wants do - personal values and aspirations
• What a company should do - social responsibility

Of these factors, the combination of competence and resource is the most crucial to success. See strategic focus for a similar set of factors to be integrated into a pattern for competitive advantage.

Characteristics of strategy, Mintzberg (1998) --

• Sets direction
• Focuses effort
• Defines the organization
• Consistency

Components of strategy (Saloner, Shepard, and Podolny, 2001, as cited in Roberts, 2004, pp 13-16) --

• objective -- a goal against which the firm can measure itself and judge its success
• shareholder return
• stakeholder's interests
• constituent's interests
• competitive objective
• a specification of goals to guide choices


• scope -- a statement of scope-- a specification of the business the firm is in
• offerings
• customers and market segments served
• activities it will undertake
• where things happen
• what technology will be used
• what opportunities will not be pursued
• a specification of boundaries for choices


• competitive advantage -- a specification of the nature of the firm's competitive advantage -- how the firm's offer will lead others to deal with it on terms that allow it to realize its goals
• how the firm will attract a profitable market
• how it will create value
• how it will generate a willingness of customers to pay an amount exceeding the cost of serving them


• logic -- an explication (a clear explanation) of why the claimed competitive advantage will actually be realized
• why the firm gets to claim some nontrivial share of the value it creates
• how this claim to nontrivial value will be sustained
• how the firm will get a price that exceeds its cost
• what will keep actual and potential competitors from stealing away its customers
• what ensures that suppliers and customers do not manage to appropriate all the value created
• valid logic involving -- a system of implications linking the particular position occupied by the firm and the distinctive capabilities it enjoys to the customers' choices and then back, via the prices, costs, and volumes that result, to the firm's ability to maintain and enhance its position and capabilities


• corporate strategy --
  identifies the set of businesses the firm will encompass and the logic of why doing so will allow it to create extra value over and above what a collection of stand-alone businesses can create. A portfolio choice combined with a theory of the role of the corporate center.

Fundamental dimensions of strategy (Fréry, 2006) --
definitionsnew of strategy look at it from the point of view of planning resource allocation, satisfying stakeholders, stretching unique competencies, adapting to the environment, programming sophisticated management systems, or muddling through emerging ideas. The book Strategy Safari distinguished between ten schools of thought regarding strategy. So, what exactly is strategy?

To delimit the boundaries of the discipline and highlight its specifics, Fréry argues that strategy comprises three objectives: creating value, handling imitation and shaping a perimeter.

• Value, the ""why"" of strategy -- Value is the ""why"" of strategy. The ability to sustain value creation, whether from the customer's or the shareholder's perspective, is the ultimate goal of any strategy. The central challenge is to define the type of value we expect and the way we intend to distribute it. Seeing strategy as value creation links in to debates on managerial ethics, agency theory, and corporate responsibility. A sound strategy must be developed between the extremes of shareholder value and customer satisfaction, profit maximization and corporate social responsibility.


• Imitation, the ""how"" of strategy -- he workings of strategy are closely coupled to the idea of imitation. Concepts such as benchmarking, differentiation, core competencies, unique resources, institutionalism, and competitive rivalry are all connected with the ability to prevent, implement or leverage imitation.


• Perimeter, the ""what"" of strategy -- Other than designing a viable and profitable business model and managing imitation, the essential role of the strategist is to shape the perimeter of the organization so as to define or set the limits of its scope. Decisions about diversification, outsourcing, vertical integration, internationalization and positioning are all linked with the search for a profitable perimeter.
  
  The concept of perimeter encompasses two fundamental strategic questions:
  • What business are we in? -- This implies a clear definition of the overall mission statement or purpose of the organization.
  • Where do we position ourselves along the value network of our industry? -- This addresses a company's positioning inside the overall value chain of its industry. Defining the perimeter includes make-or-buy and vertical integration decisions, and to choices of partners, suppliers, customers, and competitors. This concept relates to Slywotzky's idea of value migration in that the organizational perimeter must shift along with the locus of value.

Executives can clarify the nature of strategic decisions by considering value, imitation, and perimeter. They can tell if an issue is strategic according to whether it involves designing or modifying a value system, preventing or ensuring imitation, and redefining a perimeter.

Note the commonality of this view of strategy with the definition of strategic focus -- the ""what"" is equivalent to purpose, ""why"" is the equivalent of value proposition, ""how"" is equivalent to distinctive competency. These three relate to three of the four aspects of the BAi business model. The second point of ""what"", the value stream position, relates to the fourth aspect of the business model, structure.

Strategic fit vs. leveraged resources models of strategy (Hamel, 1989) --
Gary Hamel and C.K. Prahalad identified two prevalent strategy models. Their comparison brings to light two very divergent views on how to approach strategy. One model focuses on strategic fit, the more prevalent model in Western companies, at least in the late 1900s. The other model centers on leveraging resources, the more prevalent in Japanese firms in the late 1900s.

• Both models recognize the problem of competing in a hostile environment with limited resources.
• strategic fit -- the emphasis is on trimming ambitions to match available resources.
• leveraging resources -- the emphasis is on leveraging resources to reach seemingly unattainable goals.


• Both models recognize that relative competitive advantage determines relative profitability.
• strategic fit -- emphasizes the search for advantages that are inherently sustainable.
• leveraging resources -- emphasizes the need to accelerate organizational learning to outpace competitors in building new advantages.


• Both models recognize the difficulty of competing against larger competitors.
• strategic fit -- leads to a search for niches (or simply dissuades the company from challenging an entrenched competitor).
• leveraging resources -- produces a quest for new rules that can devalue the incumbent's advantages.


• Both models recognize that balance in the scope of an organization's activities reduces risk.
• strategic fit -- seeks to reduce financial risk by building a balanced portfolio of cash-generating and cash-consuming businesses.
• leveraging resources -- seeks to reduce competitive risk by ensuring a well-balanced and sufficiently broad portfolio of advantages.


• Both models recognize the need to disaggregate the organization in a way that allows top management to differentiate among the investment needs of various planning units.
• strategic fit -- resources are allocated to product-market units in which relatedness is defined by common products, channels, and customers. Each business is assumed to own all the critical skills it needs to execute its strategy successfully.
• leveraging resources -- investments are made in core competences (microprocessor controls or electronic imaging, for example) as well as in product-market units. By tracking these investments across businesses, top management works to assure that the plans of individual strategic units don't undermine future developments by default.


• Both models recognize the need for consistency in action across organizational levels.
• strategic fit -- consistency between corporate and business levels is largely a matter of conforming to financial objectives. Consistency between business and functional levels comes by tightly restricting the means the business uses to achieve its strategy-establishing standard operating procedures, defining the served market, adhering to accepted industry practices.
• leveraging resources -- business-corporate consistency comes from allegiance to a particular strategic intent. Business-functional consistency comes from allegiance to intermediate-term goals or challenges with lower-level employees encouraged to invent how those goals will be achieved.

Strategy related concepts --
Schools of strategy formation --
See strategy formation for an explanation of Mintzberg's ten schools of strategy formation.

Strategy and authenticity (Ogilvy, 2003) --
See authenticity.

Strategy and purpose (Mourkogiannis, 2005) --
See purpose -- discovery of purpose and development of strategy.

Strategy and where the future comes from --
How does the future come about? Does it happen or is it made? What is your organizations role in either case? ""The best way to predict the future is to invent it..."" (Alan Kay)

Strategy as business design --
Strategy is about the creative innovation of the business. The systemic view strategy is about designing a business. In order to design something, we must be able to define it, model it, describe it, understand its nature, know its principles, and appreciate its dimensions. From these points of reference, we can also then define the process to understand, create, plan, and deploy the new design, whether transforming an existing business organization or creating a new one.

Strategy and organization design --
Strategy is may involve organization design, but organization design follows from strategy, not the other way around. Organization design largely reflects the structure of decision making, how power will be disseminated throughout the organization. This should follow from the definition of the purpose, offerings, and processes of the business organization, being tailored to best ""house"" the processes needed to produce the offerings in pursuit of the purpose. ""Businessmen will have to learn to build and manage an innovative organization."" (Peter F. Drucker, The Age of Discontinuity - Guidelines to Our Changing Society, Harper & Row, 1968, p. 54). 'To build...' generally implies 'design.'

""Common sense"" views of strategy - simple or simplistic --
There are many simplified views of strategy that can be appealing in their simplicity. For example, a common explanation goes something like this -- strategy is largely about three things: understanding today, determining where you want to be tomorrow, and determining how that will be achieved. These simplistic explanations may put an audience at ease, especially an executive audience looking for a simple rational approach to strategy. The question to as yourself is whether this explanation simple or simplistic.

When examined critically, this explanation is fraught with unspoken assumptions, many of which may be found to be unreasonable when explicitly examined --