Strategy

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: Any questions or comments regarding the perspectives on strategy outlined by Mintzberg (1987)?

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.

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.

Exercise

Find a real-life example of possible relationships between the perspectives and dicuss their relevance for strategy development today (10 minutes).

Schools of strategy

Overview

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

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 schoool is that the strategy making process is not just cerebral, but formal – decomposable into distinct step, delineated by checklists and supported by techniques (with regard to objectives, budgets, programmes and operating plans). Staff planners replace senior managers as the key players 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 positionting schoold advocates for finding a unique market position or competitive advantage to succeed. Strategy is about selecting the right “position” in the marketplace through formalized analyses of industry situations. Hence, analysts become the key players in the process.

Entrepreneurial school: a visionary process

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.

The entrepreneurial school 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

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

In this view, 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.

It 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

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 school 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

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.

The cultural school 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

This 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 school 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

Argues 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.

Comparison

School	Illogical extreme	Intended message	Realized message
Design	Fixation	Fit	Think (strategy making as case study)
Planning	Ritual	Formalize	Program (rather than formulate)
Positioning	Fortification	Analyze	Calculate (rather than create or commit)
Entrepreneurial	Idolatry	Envision	Centralize (then hope)
Cognitive	Fantasy	Cope or create	Worry (being unable to cope in either case)
Learning	Drift	Learn	Play (rather than pursue)
Power	Intrique	Promote	Hoard (rather than share)
Cultural	Essentricitiy	Coalesce	Perpetuate (rather than change)
Environmental	Conformity	React	Capitulate (rather than confront)
Configurational	Degeneration	Integrate, transform	Lump (rather than split, adapt)

Table 1: Dimensions of the then schools (Mintzberg 2014)

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.

Exercise

Get back to your small group and discuss what each perspective (5 Ps) implies for the strategic management process (10 minutes).

Few key terms

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.

Exercise

What are sources of competitive advantage?

Operational effectiveness

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).

OE is important, but it cannot be not a source of sustainable competitive advantage.

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?
• In your opinion, how relevant and applicable are these strategy types for modern organizations? Can you provide examples of real-world companies that fit into each category?
• In your opinion, how relevant are the strategy types identified in the study?
• 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.