Introducing Strategy Topic 1 – Overview

Learning Objectives

• Develop of an understanding of different approaches to strategic management

• Conceive the elements of the Strategic Management Model
• Outline a framework for strategic planning

Introduction

In today’s complex world, you need to be able to look beyond your daily tasks to create
opportunities for the future. Learn how to use strategic thinking to examine your environment
from a broad perspective—and take actions that support your organization’s goals. For many,
‘Strategy’ appears to be the very pinnacle of the hierarchy of management functions. Indeed, a
brief venture into the derivation of the term reinforces these intimations. But strategy is not
just that. In fact, we form strategies every day. As we explain below, Andersen (2000)
believes that strategies can be formed in distinct organizational levels; that the process of
strategy formation can be either top-down (deliberate) or bottom-up (emergent),
depending on the need of the organization to face the environment changes.

Emerging VS Deliberate

The deliberate and emergent strategy formation process represents the paradox extreme of
strategy formation. While deliberate strategies represent the formalization of strategy, being
developed top-down and involving only top management, emergent strategies are associated
to processes from daily activities or decisions, such as the participation of the whole
organization and being developed bottom-up.

In Mintzberg and Waters (1985) view, the basic difference between deliberate and emergent
strategy is considering the focus, direction and control. In deliberate strategies the emphasis is
on the central direction and hierarchies, and these are associated to formal strategic planning,
focusing on control and weakening strategy-as-practice, which reduces strategic advantage. In
emergent strategies the emphasis is on collective actions and convergent behaviors, focusing
on learning.
Both emergent and deliberate strategies are important and must be taken into consideration by
strategists. According to Mintzberg and Waters (1985), strategic choice requires awareness in
such a degree that can characterize the efficacy of managers and organizations.

On the other hand, the integrating process of strategy formation is that which equates both
processes; it is the sum of deliberate and emergent action (Andersen, 2004, Lavarda, Canet-
Giner & Peris-Bonet).

The integrating process of strategy formation needs a planned and decentralized strategic
process (Andersen, 2004). The planned process is linked to rationality, centralization and
formalization in high levels (Ansoff, 1987). The decentralized strategic process though is related
to participation and involvement of different hierarchical levels of the organization in the
decision-making process

Overall, we can say that Strategy, is thought and exercised at different levels, as follows:

• The Corporate level strategy: including board of directors, chief executive,

administrative officers. Responsible for financial performance, image, and Corporate
Social Responsibility

• The Business level strategy: business and Corporate Managers, translate the statements
of direction generate by the corporate level into objectives and strategies

è The Functional level strategy: managers of products, geographic and functional areas,
developing annual objectives and short-term strategies in areas of production,
operation, R&D, finance, MKTG, HR. Execute firm’s strategic plans, efficiency,
productivity
Video: at this point, you are advised to watch the ‘Strategy formation process: deliberate or
emergent?’ video. To do so, please copy and paste the following link in your browser:
https://www.youtube.com/watch?v=wKFIhVMnsss

Strategy, Strategic Management & Strategic Thinking

Now that we have seen how strategies are formulated in our daily life, let’s examine ‘Strategy’
and ‘Strategic Management’, as they exist in the corporate context. We start our Topic
overview with a number of definitions about ‘Strategy’, ;Thinking; and ‘Strategic Management’.

Strategy, ‘is the direction and scope of an organisation over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences
with the aim of fulfilling stakeholder expectations. Its purpose is to exploit and create new and
different opportunities for tomorrow. Also, according to Pearce and Robinson (2009), strategy
is a ‘set of decisions and actions that result in the formulation and implementation of plans
designed to achieve a company’s objectives.

Also, according to Andrews (cited in Morden, 2006: 14), ‘strategy is the pattern of decisions in a
company that determines and reveals its objectives, purposes or goals, produces the principal
policies and plans for achieving those goals, and defines the range of business the company is
to pursue, the kind of economic and human organization it is or intends to be and the nature of
the economic and noneconomic contribution it intends to make to its shareholders, employees,
customers and communities … the strategic decision contributing to this pattern is one that is
effective over long periods of time, affects the company in many different ways and focuses
and commits a significant portion of its resources to the expected outcomes’.

Moreover, the pattern resulting from a series of such decisions will probably define the central
character and image of a company, the individuality it has for its members and various publics,
and the position it will occupy in its industry and markets. It will permit the specification of
particular objectives to be attained through a timed sequence of investment and
implementation decisions and will govern directly the deployment or redeployment of
resources to make these decisions effective.

Strategic management, furthermore, Strategic is concerned with the character and direction of
the Enterprise as a whole. Specifically, it is described as the ‘Art & science of formulating,
implementing, and evaluating, cross-functional decisions that enable an organization to achieve
its objectives. It is concerned with basic decisions about what the enterprise is now, and what it
is to be in the future. According to Morden (2006: 15), Strategic Management determines the
purpose of the enterprise. It provides the framework for decisions about people, leadership,
customers or clients, risk, finance, resources, products, systems, technologies, location,
competition, and time. It determines what the enterprise should be capable of achieving, and
what it will not choose to do. It will determine whether and how the organization will add
value, and what form that added value should take.

As a manager, moreover, you have many responsibilities, including planning, executing, and
leading your team. But to bring the most value to your organization—and advance your own
career—you also need to be able to think strategically.

Strategic thinking is the ability to analyze opportunities and problems from a broad perspective.
It involves continually assessing your organization and industry—and applying your insights to
achieve competitive advantage. Through strategic thinking, you visualize what might or could
be for your organization, given the ever-changing context in which it operates. And you use
your awareness of the big picture to inform your on-the-job choices.

When you think strategically, you:

• Lift y o u r h e a d above your day-to-day work and pay attention to the

larger environment in which you’re operating.

• Ask questions and challenge assumptions about how things work in your
organization and industry.
 • Gather complex, sometimes ambiguous data and interpret it.

• Exercise intuition and creativity to formulate a vision of where your organization

should be heading.

• Use the insights gained to make smart choices and select appropriate courses of
action.

You do all of these things with an eye toward generating the best possible results tomorrow—
using the opportunities presented to you today.

Why is strategic thinking important?

In today’s highly competitive and fast-changing world, a narrow focus on daily tasks can create
short-term accomplishments—but fail to position an organization for long-term success.

The benefits you reap when you and others think strategically:

• You improve your organization’s ability to adapt to shifting conditions and demands.

• You prepare your team to respond quickly to take advantage of emerging trends—or to
minimize the damage caused by unforeseen events.

• You learn to use resources effectively and avoid costly mistakes.

• You apply your insights to help your organization differentiate itself from your
competitors.

Organizations that don’t make strategic thinking a priority run the risk of becoming obsolete.
Unless you continually reevaluate your environment and plan for an unknown future, you are
destined to remain stuck in the past—while your competitors move forward. Through strategic
thinking, you lead your organization in identifying bold new opportunities for lasting success.

Also, as managers we are interested in the way that the environment can be considered with
certainty or should be viewed as a constantly changing business landscape. The degree of
certainty is an important factor in understanding how the context of a situation will affect the
ability to analyse things and subsequently our decision-making. The three themes develop ideas
of how strategy is enacted and who is actually involved in strategic thinking.

Strategy is a central part of organisational life and is therefore an important activity to be aware
of and to consider in more detail. As we will discuss over the course of the module it is perhaps
misleading to identify strategy as one thing, universal to all business situations. Thus, the way
that we think about strategy is a good place to start. At the outset it is important to distinguish
two elements of strategy:

1. Strategic Thinking

2. Strategic Decision Making

Inevitably, the two elements are linked and it is arguable that business focuses more on the
decision making than the thinking. This is perhaps dangerous as there needs to be a clear and
considered thought process that seeks to draw in as much of a situation as possible before a
decision is ultimately made. Therefore, the focus in much of the discussions is on the elements
that help us understand and improve the strategic thinking.

Strategic Terminology

In this part of the analysis we will clarify a number of important terms and concepts that are
used in strategic management (figure below). As we discussed earlier, strategic management is
also concerned with management planning and decision-making for the medium to long-term
future. It is concerned with the anticipation of that future, and with the establishment of a
vision or view of how the enterprise should develop into the future that it must face.
Following this line of thought, we start our analysis with the so called Corporate Mission.

Statements of mission specify what the enterprise is about, what its values are, and what its
purpose is to be. Specifically, a company’s mission is ‘the unique purpose that sets a company
apart from other of its type and identifies the scope of its operation in product, market, and
technology terms’. In other words, The mission of the Walt Disney Company is for example to
develop global entertainments that “bring happiness to millions”. A mission is a general
expression of the overall purpose of the organisation, which, ideally, is in line with the values
and expectations of major stakeholders and concerned with the scope and boundaries of the
organisation. It is sometimes referred to in terms of the apparently simple but challenging
question: ‘What business are we in?’

Whether developing a new business or reformulating direction, a company’s mission statement

usually contains the following:

• The business philosophy set by strategic decision makers

• It implies the image the firm seeks to project

• It reflects the firms self-concept

• It indicates the firm’s principal product or service areas

• The customers’ needs a firm will attempt to satisfy

Also, in the process of designing a mission statement, a strategist asks the following questions:

• Why is this firm in business?

• What are our economic goals?

• What is our operating philosophy in terms of quality, company image, and selfconcept?

• What are our core competencies and competitive advantages?

• What customers do and can we serve?

• How do we view our responsibilities to stockholders, employees, communities

• environment, social issues, and competitors?

At this point, read the HARLEY-DAVIDSON below and try to answer the questions as they
appear above. Please not, not all questions as answered in every mission statement. Also, not
all mission statements have the same depth and size.

Moreover, some mission statements are very long and detailed, while some other are very
brief. As we mentioned earlier, the mission statement of the Walt Disney Company is very brief
while mission statement of Starbucks Coffee Company is impressively extensive.

Interesting reading: you are encouraged to visit the following webpage and read Walt Disney’s
mission and vision statements: https://www.thebalance.com/disney-mission-statement-
2891828
Furthermore, companies formulate not mission statements only, but also ‘vision statements’.

The difference is the following:

• A Mission statement answers the question ‘What business are we in?

• A Vision Statement expresses the aspirations of the executive leadership.

More specifically, the Vision Statement is ‘a statement that presents a firm’s strategic intent
designed to focus the energies and resources of the company on achieving a desirable future’.
Importantly, although a mission statement runs for 5 years, the duration of a vision statement
is 10 years. This is because a vision statement is how corporate executives visualise their
company in the distant future. This is clearer if you read the Vision Statement of MICROSOFT,
that appears immediately below:

As you can see, MICROSOFT executives would love to see the entire planet, literally every single
computer on every single desk in the world, operating with Microsoft software.

Microsoft has achieved its vision or not is up to you to decide. Well, for sure it appeared
extremely near to achievement. Another competitor, however, with its own mission and vision,
namely, APPLE, ruined the plans of Microsoft, at least for now. A vision or strategic intent is the
desired future state of the organisation. It is an aspiration around which a strategist, perhaps a
chief executive, might seek to focus the attention and energies of members of the organisation.

However, who is responsible for determining a firm’s mission? Who is responsible for acquiring
and allocating resources to develop and implement a strategic plan? Who is responsible for
monitoring a firm’s success in the competitive marketplace to determine whether that plan was
well designed? The answer to these questions is THE BOARD OF DIRECTORS. Following our
analysis of ‘Strategy’, ‘Strategic Management’, the Mission and the Vision statements, the next
major concept of the topic is the Board of Directors. Usually, you spot them in a company’s
published reports and most of the times are smartly dressed as in the random photograph
below.

GE Board of Directors, 2009. Source: http://www.ge.com/ar2009/board.html

They are important Strategic decision makers. Organizations have multiple levels of decision
makers. The larger the firm, the more levels it will have. The strategic managers at the highest
level are responsible for decisions that affect the entire firm. One single decision by this group
of people may bring ling-term success or instant a dreadful bankruptcy. This is because at the
highest level managers commit the firm and its resources for the longest periods. The Board of
Directors of the company declares the firm’s sense of values. They are responsible for
overseeing the creation and accomplishment of the company mission, as explained earlier.

By definition, the board of directors is a ‘group of stock-holder representatives and strategic

managers responsible for overseeing the creation and accomplishment of the company
mission’. The leader of the team is titled as ‘Chief Executive Officer’, or in short CEO. Their main
responsibilities are the following (Johnson, Scholes, and Whittington, 2011):

1, To establish and update the company mission

2. To elect the company’s top officers, the foremost of whom is the Chief Executive

Officer (CEO)

To establish the compensation level of the top officers including their salaries and bonuses

4. To determine the amount and timing of the dividends paid to stockholders

5. To set broad company policy on such matters as labor management relations, product lines,
benefits

6. To set company objectives and authorize managers to implement the decided long-term
strategies

7. Mandate company compliance with legal & ethical issues

Strategic Position

The strategic position is concerned with the impact on strategy of the external environment, an
organisation’s strategic capability (resources and competences) and the expectations and
influence of stakeholders. As indicated in the following figure, no company exists in a vacuum.
On the contrary, companies are influenced by external forces that hit the environmental bubble
of the organisation and bringing change. These forces may be Political (P); Economic (E); Social
(S); Technological (T); Legal (L); and Environmental (E). this where the PESTLE tool is coming
from.

Understanding the strategic position is concerned with identifying the impact on strategy of the
external environment, an organisation’s strategic capability (resources and competences) and
the expectations and influence of stakeholders. The sorts of questions this raises are central to
future strategies and these issues are covered in Topics 2 and 3 in Week 2 and Week 3
respectively.

The organisation exists in the context of a complex political, economic, social, technological,
environmental and legal world. This environment changes and is more complex for some
organisations than for others. How this affects the organisation could include an understanding
of historical and environmental effects, as well as expected or potential changes in
environmental variables. Many of those variables will give rise to opportunities and others will
exert threats on the organisation – or both. Let us put it simply. Let us say that your daily job
requires you distributing soft drinks in a particular geographical area. For the needs of your
daily distribution you need $200 (US). But let us assume that a major natural disaster or a war
destabilises the petrol market once again and the price sky corrects. Now, for your usual
routine distribution you may need $250 US instead of $200. $50 extra on a daily basis is the
equivalent of $1500 a month or $18,000. And this is for petrol only. The impact of these
influences can be strategic drift, a failure to create necessary change.

Video: at this point, you are advised to watch the ‘PEST Analysis’ video by copying anf pasting
the following URL in your browser: https://www.youtube.com/watch?v=v7pUv_ZWnyM

The Strategic Management Process

The concept of strategic management is illustrated in the following figure. It has four
component processes. These are:

• Strategic analysis and planning.

• Strategy formulation and strategic decision-making.

• Strategic choice.

• Strategy implementation.
 Source: Johnson, Scholes, and Whittington (2011)

Strategic Analysis and Planning

Strategic analysis is a process by which the enterprise examines its own internal or corporate
characteristics and capabilities; and identifies the most important features of the external
environment within which it must operate. The process is used to identify and understand such
variables as:

_ the internal operational and financial strengths and weaknesses of the organization.

_ the external or environmental constraints, opportunities, and threats facing the enterprise.

_ the competitive environment within which the enterprise must operate.

_ the political and institutional environments within which the enterprise must operate.
_ the nature of the resources, capacity, leadership, willpower, and capability that the enterprise
possesses, or that are needed so that the enterprise may be able to achieve its objectives (that
is, “what the organization must be able to do”).

_ the sources of value addition available to the enterprise.

_ enterprise sources of comparative or competitive advantage.

_ enterprise sources of political advantage.

_ factors which are critical to enterprise survival and success (“critical success factors”).

_ factors which instead will place limits or constraints on the potential achievements of the
enterprise.

Strategic analysis is used to inform the processes of strategy formulation, strategic decision
making and strategic choice.

The planning process may variously be described in such terms as “strategic planning” or
“business planning”. The difference between these two terms is a matter of degree. Both are
concerned with how the enterprise proposes to map out and to manage its necessary
engagement with or involvement in the future time horizons to which it is committed. The
planning process is described on the basis of the following variables:

_ the analysis of time.

_ the analysis of risk.

_ the analysis of forecasting processes.

_ the description of the business planning process.

The planning process is used to inform and to structure the processes of strategy formulation,
strategic decision-making, strategic choice, and strategy implementation.

Strategy Formulation and Strategic Decision-Making

Processes of strategy formulation and strategic decision-making are used to establish

enterprise mission, objectives, and strategy. Mission, objectives, and strategy will derive from
the vision and values of the enterprise, of its leaders, of its decision-makers, and of its
stakeholders. The enterprise will have to decide how to formulate its strategies and plans; to
decide who is to be involved in this process; and to decide how to make decisions about the
allocation of finance and resources that are required to put these strategies and plans into
operation. Decision-makers will have to know how to identify and describe the alternative
courses of action that are likely to be available to the enterprise, given the findings of the
process of strategic analysis and business planning described in Parts One and Two. They will
also have to put in place criteria by which to judge whether these alternative courses of action
are feasible and appropriate, and whether they can afford to put them into practice.

Strategy Choice

The process of strategy choice is used to identify the alternative courses of action that, given its
available resources, its capability, its willpower, and its sources of comparative or competitive
advantage, are likely to be available to the enterprise (i) over the time scale and time horizon to
which it operates; and given (ii) its attitude to risk. For example, should the enterprise remain a
national supplier, or should it go international? Should it aim to achieve a large market share?
Should it make very high quality products? Should it aim for high margins or does it want to be
a low-cost supplier? How long will it be able to wait before its investment projects pay for
themselves? Can it think long term, for instance in the matter of research and development,
skills development, or new product development? Must it meet demands from its shareholders
for a consistent and substantial annual flow of dividends? Is it required by the state to meet
targets for performance in the provision of healthcare or public services? Or does the
organization have to catch and convict terrorists, and how is it to do so?

Decision-makers will have to select those strategies from the alternatives they have identified
that they consider will best or most effectively enable the enterprise to fulfil the mission and
achieve the objectives it has formulated for itself (or which have instead been laid down for it).
This decision will require skill and judgement. It will entail the risk that decision-makers may
make the wrong choice, or make decisions that take the enterprise in directions for which it is
not prepared. Decision-makers will have to think through the resource allocation implications
of their strategic choice. Can the enterprise afford to do what is being proposed?

Has the organization got the right people, the right leaders, the right skills, and the right assets?
And what kind of market, financial, or political returns will decisions on strategic choice bring?

Strategy Implementation

The process of putting the enterprise’s chosen strategies and plans into practice takes place
within the internal context and constraints of the people, the leadership, the structure, the
resources, the capability, and the culture of the organization. Strategy implementation also
takes place within the context and constraints of the external, political, and competitive
environments. The implementation of strategic choice will in addition take place within the
context of those people and organizations external to the enterprise but with whom it has any
form of operational, partnership, supply or trading relationship. Strategy implementation will
depend on the nature of the knowledge, technology, and competence resources available to
the enterprise. It will also depend specifically on the nature of decisions about financial and
competition strategy. The implementation of strategies will be constrained by the need to
make the best use of the available resources, to meet financial obligations, and to ensure
survival in the face of the increasingly harsh demands of (i) competitive international trading
environments; or (ii) performance-orientated public sector decision-makers.

Summary

As we have examined in this Topic, strategy is the direction and scope of an organization over
the long term, which achieves advantage in a changing environment through its configuration
of resources and competences with the aim of fulfilling stakeholder expectations. Strategic
decisions are made at a number of levels in organisations. Corporatelevel strategy is concerned
with an organisation’s overall purpose and scope; business-level (or competitive) strategy with
how to compete successfully in a market; and operational strategies with how resources,
processes and people can effectively deliver corporate- and business-level strategies. Strategic
management is distinguished from day-to-day operational management by the complexity of
influences on decisions, the organisation-wide implications and their long-term implications.
Strategic management has three majorelements: understanding the strategic position, strategic
choices for the future and strategy in action. The strategic position of an organisation is
influenced by the external environment, internal strategic capability and the expectations and
influence of stakeholders. Strategic choices include the underlying bases of strategy at both the
corporate and business levels and the directions and methods of development. Strategy in
action is concerned with issues of structure and processes for implementing strategy and the
managing of change.

Further Reading

At this point, you are advised to access our ebook and read chapters 1 and 2.