THE CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT
G. Tyge Payne, PhD
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?
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...
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