Definition and Schools

Strategy and Performance Management

Andy Weeger

Neu-Ulm University of Applied Sciences

July 22, 2025

Learning objectives

After this section, you should have a solid understanding of

• the concept of value-based strategy illustrated by the value stick,
• the difference between value and profit,
• main value drivers and how they can be implemented,
• the different perspectives on strategy, the related schools and their impact on 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.

Value-based strategy

In a nutshell

Strategy?
A plan to create value.

It may not be quite that simple, but it’s almost.

This simple definition captures the essence of value-based strategy as proposed by Felix Oberholzer-Gee. While strategy involves many complexities, at its core it’s fundamentally about creating value for stakeholders.

Exercise

What is strategy?

In small groups of three or four, discuss what business strategy is and how to recognise a successful business. Identify a company that you can use to illustrate your findings.

What is stratgegy?

Exercise

Get back to your groups, and apply the value stick concept to the company you have used as an illustration in the last exercise and work on the following questions:

• To what extent do customers demonstrate a willingness to pay for the company’s offerings?
• What pricing strategy does the company employ?
• How does the pricing strategy compare to that of competitors?
• What are the primary costs and how does the company manage these?
• What factors motivate suppliers or employees to work with the company?
• How does the company create value for its customers, employees, and suppliers?
• How does the company capture value (i.e., generate profit) from its operations?

Prepare to present what you found.

What is value-based strategy?

A value-based strategy focuses on creating and capturing value for all stakeholders through willingness to pay, pricing strategy, cost management, and willingness to sell.

According to the value-based strategy framework, organizations should focus on four key questions:

• To what extent do customers demonstrate a willingness to pay for the company’s offerings?
• What pricing strategy does the company employ and how does it compare to competitors?
• What are the primary costs associated with production and delivery, and how does the company manage these?
• What factors motivate suppliers or employees to work with the company?

The framework emphasizes that successful companies create value for customers, employees, and suppliers while capturing value (generating profit) from operations.

Value vs. profit

Value creation is about increasing the total value available to all stakeholders, while value capture is about how much of that value the company retains as profit.

The difference between value and profit is fundamental:

• Value refers to the total benefit created for all stakeholders (customers, employees, suppliers, shareholders)
• Profit is the portion of value that the company captures for itself
• Sustainable competitive advantage comes from creating more total value, not just capturing more for the company
• Value creation and value capturing should be balanced - companies that only focus on capturing value may harm long-term relationships

Perspectives on strategy

5 Ps for strategy

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

Mintzberg (1987) identified five definitions of strategy that provide different lenses for understanding strategic management:

Interrelating the Ps

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

 

 

 

 

 

 

 

Mintzberg’s five Ps framework recognizes that strategy involves dynamic interplay of different perspectives, where one P can give rise to others in various ways.

Figure 1: Some possible relationships between strategy as plan, pattern, position, and perspective (Mintzberg 1987, 18)

How Ps lead to 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

Examples of interplay

• Netflix: Behavioral patterns of data-driven decisions led to a data-driven perspective that now guides all strategic planning
• Kodak: Immutable perspective about film photography prevented changes to plans and positions, despite technological shifts
• Toyota: Recognizing patterns of inefficiency led to the Toyota Production System plan, which transformed manufacturing perspective industry-wide

Each perspective focuses attention on important aspects of the organization and its strategy. Together, they enhance our ability to understand and manage the processes by which strategies form.

Detailed 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.

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 represent different processes of strategy development and implementation.

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).

Strategic management is process-oriented, deliberate and emergent, and influenced by cognition, politics, and culture.

Strategic management characteristics:

• Process-oriented: Ongoing, continuous process rather than one-time event
• Deliberate and emergent: Combines planned intentions with adaptive responses
• Influenced by multiple factors: Not solely rational but affected by cognitive limitations, political dynamics, and cultural factors
• Cross-functional: Involves decisions spanning multiple organizational functions
• Proactive orientation: Allows organizations to be more proactive than reactive in shaping their future

Some authors use strategic management synonymously with strategic planning, though strategic management typically refers to the broader process including formulation, implementation, and evaluation.

Phases of strategic management

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

 

 

 

 

 

 

 

 

 

Strategic management involves three interconnected phases: formulation, implementation, and evaluation, with feedback loops connecting all phases.

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

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).

Strategy characteristics:

• Broad, high-level plans that guide organization’s overall direction and viability
• Long-term in nature
• Abstract and conceptual
• Define continuing basis for ordering adaptations towards broadly conceived purposes

Tactics characteristics:

• Specific, focused actions to address immediate challenges or opportunities
• Short-term in nature
• Concrete and specific
• Short duration, adaptive action-interaction realignments used to accomplish limited goals

Strategy is the pattern or plan that integrates an organisation’s major goals, policies and programs into a cohesive whole (Mintzberg 2014):

• Goals state what is to be achieved, and by when
• Policies are rules or guidelines that express limits within which action should occur
  
• Programs specify step-by-step sequence of actions necessary to achieve major objectives

Competitive advantage

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

Competitive advantage refers to factors that set a company apart from rivals and allow it to:

• Gain stronger market position
• Achieve higher profitability
  
• Sustain long-term success
• Provide superior value to customers or stakeholders

Competitive advantage can arise from:

• Internally developed core competencies or distinctive capabilities (Prahalad and Hamel 2009)
• Configuration and coordination of the organization’s value chain (M. E. Porter 1986)
• Various forms of unique attributes, but common goal is providing superior value 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, while strategic positioning means performing different activities from rivals, or performing similar activities in different ways (M. Porter 1996).

Why OE cannot replace strategy:

• Competitors can often replicate operational improvements relatively quickly
• When OE is the basis of competition, it results in absolute improvements for all players, but relative advantage for no one
• Unless competitors collude, it leads to competitive convergence that can be destructive for the industry
• OE is essentially a backward-looking exercise—optimizing something already in place
• True strategic thinking involves creating new value and possibilities for top-line growth

Both OE and strategy are essential to superior performance, but OE alone cannot provide sustainable competitive advantage.

Key takeaways

• Value-based strategy provides a simple yet comprehensive framework for understanding strategy as value creation and capture
• Multiple perspectives on strategy (5 Ps) offer different but complementary lenses for understanding strategic management
• Ten schools provide rich variety of approaches to strategy formation, each with unique insights and limitations
• Strategic management is a comprehensive process involving formulation, implementation, and evaluation with feedback loops
• Strategy vs. tactics distinction helps clarify different levels of organizational decision-making
• Competitive advantage requires more than operational effectiveness - it demands unique positioning and value creation

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.

Value-based strategy

Read Felix Oberholzer-Gee’s article about eliminating strategic overload to enhance your understanding of his strategy concept and work on the following questions.

1. What is a value-based strategy?
2. According to Oberholzer-Gee, what are the key components of a value-based strategy?
3. How does creating value for customers, employees, and suppliers contribute to a company’s long-term success?
4. What is the difference between value and profit?
5. Describe the main ways a company can create value under a value-based strategy. Through what can these be implemented?
6. Provide an example of a company that has successfully implemented a value-based strategy. What specific actions did they take?
7. What advises does Obehrolzer-Gee give with regard to the selection and implementation of strategic initiatives?
8. What is the difference between value creation and value capturing (e.g., with regards to focus, process, and outcome)?
9. What are the potential challenges and limitations of implementing a value-based strategy in an organization?
10. Compare the value-based strategy approach with another strategic management theory you have studied / you will study. What are the key similarities and differences?

General questions

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. Why are objectives are essential for organizational success?
4. What role do policies play in the strategic management process? Give examples.
5. Why is strategy implementation often considered the most difficult stage in the strategic-management process?
6. Give an example of a recent political development that changed the overall strategy of an organization.

Q&A

Literature

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, 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.