Definition

What is strategy, what strategic management?

Andy Weeger

Neu-Ulm University of Applied Sciences

September 3, 2024

Learning outcomes

After this session, you should have a solid understanding of

• the different perspectives on strategy, the related schools and their impact on strategic management;
• the role and importance of objectives for strategic management;
• the phases, outcomes, challenges, and interrelations of the strategic management process;
• and the difference between strategies and tactics.

You are able to apply the knowledge gained to real-life scenarios to describe and provide explanations for strategic decisions made by firms.

Reflection

Before we start:

1. Are there review and consolidation questions from the previous chapter that need to be discussed?
2. Any questions or comments regarding the perspectives on strategy outlined by Mintzberg (1987)?

Recap

Strategy?
A plan to create value.

Is it that simple?

Perspectives

The word strategy has traditionally been defined in only one way, but used, implicitly in many different ways. Explicitly recognizing multiple definitions of strategy can bring greater clarity to this field.

Mintzberg (1987) identified five definitions:

5 Ps for Strategy

Strategy as plan, ploy, pattern, position, and perspective.

Interrelating the Ps

Some Possible Relationships Between Strategy as Plan, Pattern, Position, Perspective (Mintzberg 1987, 18)

 

 

 

 

 

 

 

 

Figure 1: Some Possible Relationships Between Strategy as Plan, Pattern, Position, Perspective (Mintzberg 1987, 18)

Mintzberg’s Five Ps framework (Mintzberg 1987) recognizes that strategy is not limited to formal planning but includes a range of approaches, from deliberate plans to tactical ploys, emerging patterns, competitive positioning, and the underlying perspectives that shape strategic decisions.

Strategic management must consider the dynamic interplay of these perspectives (i.e., how P’s lead to the others):

• A perspective may give rise to a plan
• A pattern may emerge and give rise to a formal plan
• Patterns may give rise to perspectives.

In some ways, these definitions compete because they can substitute for each other, but in other ways they complement each other.

However, each focuses attention on an important aspect of the organisation and its strategy. Together, they can enhance our ability to understand/manage the processes by which strategies form.

Examples

Perspectives gives rise to plans, plans are realized thorugh an integrated set of patterns

• Perspective: Ryanair’s underlying perspective is to provide low-cost, reliable air travel with a focus on customer service. This perspective shapes all their strategic decisions and organizational culture.
• Plan: Based on this perspective, Ryanair developed a plan to operate as a low-cost carrier. This included strategies like using a single type of aircraft (Boeing 737) to reduce maintenance costs, offering no-frills service, and focusing on point-to-point routes instead of the traditional hub-and-spoke model.
• Position: Ryanair positioned itself in the market as a low-cost alternative to traditional airlines. This clear positioning helped them attract price-sensitive customers and differentiate themselves from competitors.
• Pattern: Over time, the consistent execution of their low-cost strategy led to emergent patterns of behavior. For example, their employees became known for their friendly and efficient service, and the airline developed a reputation for punctuality and reliability.
• Ploy: Occasionally, Ryanair used tactical ploys to outmaneuver competitors, such as entering new markets with aggressive pricing to quickly gain market share.

This example illustrates how a strong perspective can lead to a clear plan and position on how to create value, which then results in consistent patterns of behavior that reinforce Ryanair’s strategic goals.

Recognizing and addressing patterns led to a strategic plan that reshapes perspectives on value creation

• Patterns: In the mid-20th century, Toyota recognized the importance of behavioral patterns to reduce inefficiencies and waste in their production processes.
• Plan: Toyota developed the Toyota Production System (TPS), which focused on eliminating waste (muda), improving quality, and increasing efficiency. This plan introduced concepts like Just-In-Time (JIT) production and Jidoka (automation with a human touch).
• Perspective: Over time, the successful implementation of TPS transformed Toyota’s perspective on manufacturing. They began to see continuous improvement (Kaizen) and respect for people as core principles of their business philosophy. This perspective not only shaped their internal culture but also influenced the broader manufacturing industry.

This example illustrates how recognizing and addressing patterns of inefficiency led to a strategic plan that ultimately reshaped Toyota’s (and even the industry’s) entire approach to create value.

Behavioral patterns give rise to a perspective (i.e., a perpsective is consolidated around what worked)

• Patterns: Netflix has consistently based its decisions and services on data (e.g. by identifying binge-worthy series and making personalised recommendations), and has found that this leads to higher user satisfaction and retention.
• Perspective: These patterns led Netflix to adopt a data-driven perspective. They began to see data analytics as crucial for understanding and predicting customer behavior. This perspective emphasized the importance of leveraging big data to make informed decisions about content creation, acquisition, and recommendation algorithms.

This shift to a data-driven perspective has been instrumental in Netflix’s success, allowing them to consistently deliver content that resonates with their audience and maintain a competitive edge in the streaming industry.

Immutable perspectives impeding changes to plans and positions

• Perspective: Kodak had a long-standing perspective that film photography was their core business. This perspective was deeply ingrained in their corporate culture and strategic thinking.
• Plan: Based on this perspective, Kodak continued to invest heavily in film technology and production, even as digital photography began to emerge. Their strategic plans focused on improving film quality and expanding film-based services.
• Position: Kodak maintained its market position as a leader in film photography, largely ignoring the growing digital market. They believed that digital photography would not significantly impact their core business.

Despite having developed one of the first digital cameras in the 1970s, Kodak’s commitment to their traditional perspective prevented them from fully embracing digital technology. This resistance to change ultimately led to a decline in their market share and financial troubles as digital photography became the industry standard.

Exercise

Turn to your neighbor and identify at least one example where we can observe the interplay of different dimensions of strategy (e.g., where one perspective led to another).

• How do the strategies impact the value stick?
• What can we learn from these examples about strategy?

Prepare to present your findings.

Schools of strategy

Overview

Design, positioning, planning, entrepreneurial, cognitive, learning, power, cultural, environmental & configurational schools

Strategy literature has been characterized by ten major schools since its inception in the 1960s – three prescriptive and seven descriptive (Mintzberg 2014).

These perspectives are both, fundamentally different processes of strategy development and implementation, reflecting the complexity and diversity of the field of strategic management, as well as different parts of the same process.

Exercise

Form groups of 4 and work on the following task:

Imagine you are the top management team of Tesla, Inc, a leading manufacturer of electric vehicles (EVs) known for its innovative approach to sustainable energy solutions.
You adopt the [assigned] school of strategy.

• Consider how their school’s perspective would be reflected in your strategizing?
• How would it influence your decisions, plans, and positions?
• Weigh up the strengths and weaknesses of your approach.
• Prepare to present your findings.

Strategic management

Definition

Strategic management is a process that encompasses the formulation, implementation, and adaptation of cross-functional decisions to achieve organizational objectives (Mintzberg 2014).

Process-oriented,
deliberate and emergent,
influenced by cognition, politics, and culture.

• It involves a combination of deliberate planning and emergent actions, as well as ongoing learning and adjustment in response to changing internal and external factors.
• Strategic management is not solely a product of rational analysis but is influenced cognitive factors (how individuals think and make decisions), political factors (organizational power dynamics and conflicts), and cultural factors (organizational values and norms)
• It involves both intended strategies (those planned in advance) and realized strategies (those that emerge through practice).”
• Strategic management allows an organization to be more proactive than reactive in shaping its own future.

Some authors use strategic management synonymously with the term strategic planning. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation (David and David 2016).

Phases

Phases of strategic management based on (Mintzberg 1987, 70)

 

 

 

 

 

 

 

 

 

Figure 2: Phases of strategic management based on (Mintzberg 1987, 70)

Discussion

What are concrete implication for the strategic management process for each perspective on strategy (5 Ps)?

Additional key concepts

Strategies vs. tactics

Strategies are about what needs to be done, while tactics are about how it will be done.

Strategy is the pattern or plan that integrates an organisation’s major goals¹, policies² and programs³ into a cohesive whole (Mintzberg 2014).

• Tactics are short duration, adaptive, action–interaction realignments used to accomplish limited goals.
  • Specific, focused actions to address immediate challenges or opportunities
  • Short-term in nature
  • Concrete and specific
• Strategies define a continuing basis for ordering these adaptations towards more broadly conceived purposes.
  • Broad, high-level plans that guide an organization’s overall direction and viability
  • Long-term in nature
  • Abstract and conceptual

Competetive advantage

A set of unique attributes or capabilities that enable an organization to outperform its competitors in the marketplace.

Competitive advantage refers to a set of unique attributes or capabilities that enable an organization to outperform its competitors in the marketplace (M. E. Porter 1998).

• The factor or combination of factors that sets a company apart from its rivals and allows it to gain a stronger market position, achieve higher profitability, and sustain long-term success.
• Arises from internally developed core competences or distinctive capabilities (Prahalad and Hamel 2009) or the configuration and coordination of the organization’s value chain (Michael E. Porter 1986)
• Can manifest in various forms, but the common goal is to provide superior value to customers or stakeholders compared to competitors.

Operational effectiveness

Executing similar day-to-day activities better than rivals perform them.

M. Porter (1996) argues that operational efficiency is important, but it cannot be a source of sustainable competitive advantage. Do you agree?

Operational effectiveness (OE) means executing similar day-to-day activities better than rivals perform them, while strategic positioning means performing different activities from rivals, or performing similar activities in different ways (M. Porter 1996).

Operational effectiveness (OE) and strategy are both essential to superior performance. However, while OE can support/be part of a strategy, it cannot replace strategy.

Competitors can often replicate and imitate operational improvements relatively quickly. Thus, when OE is the basis of competition, it results in absolute improvements for all players, but relative advantage for no one. Further, unless competitors collude to avoid cutthroat competition it leads to competitive/strategic convergence that can be destructive for the industry.

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

1. Discuss relationships among strategy as a pattern, plan, and perspective. What do these perspectives imply for strategic management? Give examples.
2. Edward Deming, a famous businessman, once said, “In God we trust. All others bring data.” What did Deming mean in terms of formulating a strategy? To which school does that attitude belong?
3. What strategies do you believe can save newspaper companies from extinction?
4. Why are objectives are essential for organizational success?
5. What role do policies play in the strategic management process? Give examples.
6. Why is strategy implementation often considered the most difficult stage in the strategic-management process?
7. Give an example of a recent political development that changed the overall strategy of an organization.
8. Why is it that a firm can sustain a competitive advantage normally for only a limited period of time?
9. How can a firm best achieve sustained competitive advantage?

Homework

Read Galbraith, Craig, and Schendel (1983) and make notes on following questions:

• Based on the empirical data, what are the strategy types identified by the authors, and what are their key characteristics?
• How relevant are the strategy types identified in the study?
• How applicable are these strategy types for modern organizations? Can you provide examples of real-world companies that fit into each category?
• What other classifications of corporate strategies do you know? How do the findings of this study align with or challenge these?
• How can the strategy types identified in the study be related to configurational thinking?
• How might an organization’s choice of strategy type be influenced by factors such as industry dynamics, competitive pressures, and its own capabilities?

Q&A

Literature

David, F. R., and F. R. David. 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Global Edition. Psychology Express. Pearson Education.

Galbraith, Jay R., Cynthia A. Craig, and Dan Schendel. 1983. “An Empirical Analysis of Strategy Types.” Strategic Management Journal 4 (2): 153–73.

Mintzberg, Henry. 1987. “The Strategy Concept i: Five Ps for Strategy.” California Management Review 30 (1): 11–24.

———. 2014. The Strategy Process: Concepts, Contexts, Cases. Pearson education.

Porter, M. E. 1998. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.

Porter, ME. 1996. “What Is Strategy?” Harvard Business Review 74: 61–78.

Porter, Michael E. 1986. Competition in Global Industries. Harvard Business Press.

Prahalad, Coimbatore K, and Gary Hamel. 2009. “The Core Competence of the Corporation.” In Knowledge and Strategy, 41–59. Routledge.

Footnotes

1. Goals (or objectives) state what is to be achieved, and by when.

2. Policies are rules or guidelines that express the limits within which action should occur.

3. Programs specify the step-by-step sequence of actions necessary to achieve major objectives, i.e. how objectives will be achieved within the limits set by policy.