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.

Strategy as plan

Strategy’ sometimes refers to a plan – some sort of consciously intended course of action, or a set of guidelines to deal with a situation. By this definition, strategies have two essential characteristics:

1. They are made in advance of intended actions.
2. They are developed consciously and purposefully before taking action.

Example

An automobile manufacturer develops a detailed 5-year strategic plan outlining product launches, market expansion, and cost reduction targets. This plan serves as a roadmap for the company’s future actions and resource allocation.

Strategy as ploy

A ploy refers to a specific maneuver or tactic employed to outwit competitors or achieve a particular objective. Ploys can be thought of as strategic tricks or moves, often aimed at exploiting competitors’ weaknesses or changing the competitive landscape.

• Strategy as ploy is a specific ‘manoeuvre’ intended to outwit an opponent or competitor.
• Strategy as ploy takes advantage of the opponent or competitor vulnerability.
• Strategy as ploy may involve diversion or deception.

Example

A beverage company lowers the prices of its products temporarily to gain a competitive advantage during a specific promotion or to respond to a competitor’s move. This pricing ploy is a tactical strategy aimed at achieving short-term objectives.

Strategy as a pattern

Patterns in strategy refer to the consistency and regularity of actions and decisions over time (i.e., a pattern in a stream of actions). These patterns emerge from the cumulative effect of an organization’s actions and reveal its strategy in practice, regardless of whether it aligns with the formal plan.

• Strategy is consistency in behavior, whether or not intended.
• While plans refer to the intended strategy, patterns refer to the realized strategy.
• Plans and patterns can be quite independent of each other: plans may go unrealized, while patterns may appear without preconception.

Thus deliberate strategies–where intentions that existed previously are realized–can be distinguished from emergent strategies–where patterns developed in the absence of/despite intentions.

Example

A fast-food chain consistently focuses on introducing new menu items and promotions every season. Over time, customers come to expect and anticipate these recurring patterns of innovation, which become a distinctive part of the company’s strategy. Strategy as Position:

Strategy as position

Positioning in strategy involves finding a distinctive and favorable place in the market or industry. It focuses on creating a competitive advantage by being unique in some way, whether through pricing, product features, or other factors.

• Strategy seeks a match between the internal and the external context. Thus, strategy could be a niche, a unique place that generates rent, or a product-market domain.
• A position can be targeted/aspired to through a plan, or it may be found through a pattern of behavior.

Position may be defined with respect to a single competitor, multiple competitors or the market at large, strategies to avoid competition and even strategies to subvert the forces of competition.

Value-based strategist like Felix Oberholzer-Gee often criticize the view of strategy as a matter of positioning within a market. They argue that this perspective is overly complex and often leads to strategies that are difficult to execute effectively. However, also if you take a value-orientated approach, you need to put the value you create in relation to your competitors and compare customer satisfaction, profit margins and supplier surplus with them and, as a consequence, position yourself.

Example

A luxury fashion brand positions itself as a high-end, exclusive label with a limited distribution network and premium pricing. This strategic position aims to appeal to a niche market of affluent customers seeking luxury and prestige.

Strategy as perspective

Strategy is a perspective – an ingrained way of perceiving the world, a collective intuition about how the world works. It can also be referred to as culture, or ideology.

This definition takes a very broad view of strategy. It highlights two key points:

1. Perspective in this context is collective—it is shared by members of the organisation.
2. Strategy is a concept—it is an abstraction that exists only in the minds of the interested parties.

Example

An environmentally conscious company adopts a perspective of sustainability and eco-friendliness in all its business operations. This perspective informs product development, sourcing of materials, and marketing, aligning the organization’s strategy with its commitment to environmental responsibility.

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.

Design and planning schools: a process of conception

The schools view strategy as a formal, deliberate process where top management sets clear objectives and plans to achieve them. They emphasize careful analysis and structured planning, where senior management formulates clear, simple and unique strategies in a deliberate process of conscious thought, which are then implemented by others.

The key idea of the planning school is that the strategy-making process is not just an intellectual act, but also a formal one - decomposable into distinct steps, delimited by checklists and supported by techniques (in terms of objectives, budgets, programmes and operational plans). Human resource planners replace senior managers as the key actors in the process.

The design and planning schools primarily focus on the formulation stage of strategic management. They provide structured frameworks and guidelines for setting objectives, analyzing the environment, and making deliberate strategic choices.

Positioning school: an analytical process

The positioning school advocates finding a unique market position or competitive advantage in order to succeed. Strategy is about choosing the right ‘position’ in the marketplace through formalised analysis of industry situations. Analysts therefore become key players in the process.

Entrepreneurial school: a visionary process

The entrepreneurial school emphasizes the role of visionary leaders and entrepreneurs in shaping strategy. Strategy is often driven by individuals’ instincts and creativity. In this regards the chief executive of the organisation is the central player. Strategy making is intuitive, and takes shape as a vision or broad perspective.

This view is relevant when organizations seek to introduce innovative or disruptive strategies. It highlights the role of visionary leaders in shaping strategy.

Cognitive school: a mental process

Cognitive school focuses on the mental processes and perceptions of decision-makers. Strategies emerge from the way individuals think and interpret information. Strategies develop in people’s minds as frames/models/maps/concepts/schemas. Strategy formation is influenced by cognitive biases.

This school is particularly relevant during the decision-making phase of strategy. It focuses on how cognitive processes, mental models, and biases influence strategic choices.

Learning school: an emergent process

According to the learning school, strategies are emergent, strategists can be found throughout the organisation, and formulation and implementation intertwine, as the organisation learns from its past experiences to guide future action.

This view emphasizes the importance of organizational learning and adaptation. It is relevant throughout the strategic management process, as organizations need to adapt their strategies based on new information and experiences.

Power school: a process of negotiation

Power school focuses on the role of power and politics in strategy. Strategy is often the result of power struggles and negotiations within an organization. There are two separate orientations of this school of thought:

• Micro power views the development of strategies within the organisation as a political process involving bargaining, persuasion and confrontation among actors who divide the power.
• Macro power views the organisation as an entity that uses its power over others, and among its partners in alliances, joint ventures, network relationships to negotiate ‘collective’ strategies in its interest.

This view is relevant during decision-making and implementation phases. It acknowledges the role of power dynamics, politics, and negotiations in shaping and executing strategies.

Cultural school: a social process

The cultural school recognizes that organizational culture plays a significant role in shaping strategy. Strategy is influenced by shared values and norms within the organization. Strategy formation is viewed as a social process rooted in culture – it focuses on common interest and integration.

This view is closely tied to understanding and leveraging organizational culture. It is relevant throughout the strategic management process, as organizational culture can impact strategy formulation, implementation, and adaptation.

Environmental school: a reactive process

The environmental school highlights the demands of the external environment, and is concerned with how organisations use degrees of freedom to manoeuvre through their environments. Organizations must adapt to changes in their external context.

This view is particularly relevant during the environmental scanning phase of strategic management. It emphasizes the need to monitor and adapt to changes in the external environment.

Configuration school: a process of transformation

The configuration school rgues that competitive advantage comes from a firm’s unique resources and capabilities. Strategy is about leveraging these strengths.

One aspect of this school views organisations as configurations of resources — coherent clusters of characteristics and behaviours – and integrates the views of the other schools, i.e. each school of thought has its own place in particular organisational types/configurations.

Change is, therefore, a process of dramatic transformation – a leap from one configuration to another. This forms the second aspect of the configuration school.

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.

• Develop a strategic plan based on the principles of their assigned school.
• Consider how their school’s perspective influences 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)

Formulation of strategy

Formulation of strategy involves the process of developing and conceptualizing a company’s strategy. It is the stage where an organization identifies its goals, assesses its resources and capabilities, and makes decisions about the direction it should take (Mintzberg 2014).

• During the formulation phase, organizations engage in activities such as strategic planning, setting objectives, conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats), and making strategic choices.
• Formulation primarily focuses on the “what” and “why” of strategy. It answers questions about what the organization wants to achieve and why those objectives are important.
• Top management and leaders play a central role in the formulation of strategy. They make critical decisions about the organization’s mission, vision, and overall strategic direction.

Implementation of strategy

Implementation of strategy refers to the actions and processes that transform formulated strategies into operational activities and results. It’s the stage where plans are put into action (Mintzberg 2014).

• Implementation involves allocating resources, setting up systems and processes, assigning responsibilities, and ensuring that the organization’s day-to-day activities align with the chosen strategy.
• The implementation phase focuses on the “how” of strategy. It addresses the practical steps and actions needed to achieve the strategic goals and objectives.
• Middle and lower-level management, as well as employees throughout the organization, play crucial roles in strategy implementation. They are responsible for executing the strategy in their respective areas.
• Implementation often presents challenges related to coordination, communication, resource allocation, and organizational culture. It requires ongoing monitoring and adjustments to ensure alignment with the formulated strategy.

Evaluation of strategy

Evaluation of strategy involves the systematic assessment of how well a company’s formulated and implemented strategies are performing in achieving its goals and objectives (Mintzberg 2014).

• Evaluation typically includes monitoring key performance indicators (KPIs), measuring progress toward strategic objectives, conducting regular reviews of strategy implementation, and assessing the impact of external changes on the strategy’s effectiveness.
• Evaluation focuses on assessing the outcomes and results of the strategies and initiatives that have been put in place. It helps organizations determine whether their strategies are on track and whether adjustments are needed.
• Evaluation involves various levels of management, from top leadership to middle and lower-level managers responsible for specific aspects of the strategy. It is a collaborative effort to ensure that the strategy remains relevant and effective.
• Evaluating strategy can be challenging due to the need for accurate data and the complexities of measuring the impact of strategic decisions. It requires the ability to adapt and make changes based on the evaluation findings.

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. Read Tzu and Cleary (2019) (or an abridged version of the book). What lessons can be drawn from this book for companies? Name and explain five, if possible, using specific examples.
7. Why is strategy implementation often considered the most difficult stage in the strategic-management process?
8. Give an example of a recent political development that changed the overall strategy of an organization.
9. Why is it that a firm can sustain a competitive advantage normally for only a limited period of time?
10. 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.

Tzu, S., and T. Cleary. 2019. The Art of War. Shambhala Pocket Library. Shambhala.

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.