Chapter 1:
What is
strategy?
What is strategy?
‘Together, the elements of strategy aim to assist
an organisation to achieve its long-term aims,
which is the essence of operating an organisation,
whatever its size or nature. The essential
question of strategy is:
Why do some organisations
perform better than others?’
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Learning objectives
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Development of strategic thought
Current theoretical perspectives on strategy
Defining ‘strategy’
Levels of strategy within an organisation
The ESC-Gap model of business strategy
Strategy in smaller countries
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Why have strategies?
 A genuine strategy is always needed when
the potential actions or responses of
intelligent opponents can seriously affect the
endeavour’s outcome – regardless of that
endeavour’s organisational level in the total
enterprise (Mintzberg & Quinn, 1991, p. 6).
 Strategies may be looked at as either a priori
statements to guide action or a posteriori
results of actual decision making (Mintzberg & Quinn,
1991, p. 6).
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
How is strategy managed?
 Information gathering
 internal
 external
}
 Information analysis
 Strategy formulation
 Decision making
 Implementing
 Monitoring
Thinking
Analysis
}
Action
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategy as the task of the top
manager
 Origins of corporate strategy
 Business Policy: Text and Cases (1965)
by Learned, Christensen, Andrews and
Guth
 Corporate Strategy (1965) by Igor Ansoff
 Strategy seen as the province of the CEO
 Need to match resources and capabilities of
the organisation with the demands of the
environment
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategy as the task of the top manager
External
appraisal
Internal
appraisal
Threats and
opportunities in
environment
Strengths and
weaknesses in
organisation
Key success
factors
Distinctive
competences
Creation of
strategy by top
management
Social
responsibility
Top management
values
Evaluation and
choice of
strategy
Implementation
of strategy
Figure 1.1
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategy as the task of the top
manager
 This model now considered a simple model
 Linear, implementation follows strategic analysis
 Presumes that all information is available
 Presumes that the complex external environment
can be analysed and summarised
 Presumes close relationship between future and
past
 Was adequate in stable, post-war environment
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Brief history of strategic thought
Period
Author
Development
Circa 500BC Sun Tzu
 The Art of War
Mid 1960s
Christensen et al.
 Business policy (strategy) exists as a field of study
Ansoff
 Corporate planning is valuable
Late 1960s
Early 1970s
Boston Consulting Group
 Multi-business portfolio planning techniques
PIMS
 Business profitability relationships
1980s
Porter
 Five forces industry analysis
 Generic strategies
 National competitiveness
Early 1990s
Mid 1990s
2000s
Wernerfelt, Barney
 Resource-based view
Hamel and Prahalad
 Core competencies
Senge
 Learning organisation
Hamel and Prahalad
 Strategy as stretch for the changing future
D’Aveni
 Hypercompetition
Various
 Sustainability and stakeholders
Table 1.1
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Corporate strategy development
(1960s and 1970s)
 Anti-trust laws encouraged diversified growth
and development of giant conglomerates
 This created a need for corporate strategy
tools
 BCG Matrix
 Profit Impact of Market Strategy (PIMS)
 Environmental uncertainty reduced the value
of long-range planning
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Focusing on industry and competitive
analysis (1980s)
 Michael Porter’s contribution to strategy
 Firms can influence both the conduct and
structure of their industry
 There are ‘Five Forces’ that affect competition
within an industry
 There are only three ‘generic strategies’
 Low delivered cost
 Differentiation
 Focus
 Nations can develop competitive advantage
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Focusing internally:
The resource-based view (RBV)
 Industry analysis and market positioning not
enough to maintain competitive advantage
 US firms unable to compete with Japanese
companies using efficient and effective
operational processes based on TQM
 No means of strategy implementation
 A developing understanding that strategy could
be developed from within using core
competencies
 Heterogeneity of firms seen as the source of
competitive advantage
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Dynamic processes and capabilities:
Learning and knowledge
 Industry analysis and RBV provide
static analysis of current position
 Do not address future competition and
development of future resources and capabilities
 Internal systems and processes
influence development of strategy
 ‘Learning organisations’ are better able
to develop dynamic capabilities
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategy as a stretch; innovation and
growth; hypercompetition; complexity
 Firms need to stretch themselves for the future, not
simply create internal fit through improved efficiency
 Innovation is necessary for survival in an
unpredictable environment
 Growth is necessary just to maintain position
 As the speed of change increases, competition
increases leading to ‘hypercompetition’
 Greater acceptance that firms are ‘complex adaptive
systems’ and that chaos theory applies to strategy
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Sustainability
 Questions arise relating to social and
ecological responsibility of business
 Can a business be deemed successful
and profitable in the long term if it is
detrimental to its stakeholders and
community?
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Theoretical approaches to strategy
Theory
Primary areas of attention
Structure–Conduct–
Performance/Positioning
 Industry structure
 Industry profitability
 Competitor positions
Transactions Cost economics
 Markets and market availability of goods and
services
 Internal production costs
Agency theory
 Incentives, controls and contracts between
management and owners
Game theory
 Actions and reactions of competitors over time
Behavioural theory
 Identification of stakeholders
 Understanding the goals and power of
stakeholders
 Understanding decision-making processes within
the organisation
Table 1.2
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Theoretical approaches to strategy
Theory
Primary areas of attention
Managerial theory
 Managerial motives and actions
 Organisational aims
Resource-based view
 Identifying unique, valuable resources within the
organisation
Dynamic capabilities
 Identifying the underlying processes of the
organisation which lead to the existence of the
resources of the organisation
Evolutionary theory
 Analysis of the past learning process and
existing learning capabilities of the organisation
Chaos theory
 Understanding the elements of the system of
organisations and environment in which the
particular organisation exists
 Understanding how organisations in the system
have adapted, grown and self-organised, or have
failed.
Table 1.2 cont.
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Summary: Strategic theory
 Considerable overlap as well as
considerable differences
 The theoretical lens used will affect the
strategy process
 Solutions are likely to be different
 There is no clearly agreed ‘meta-theory’
or integrating perspective
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
So, what is ‘strategy’?
 Strategy is about:
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
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
decision making
long-term impacts
integration and focus
implementation of decisions
creating value for customers and key
stakeholders
 outperforming competitors
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Strategy defined
 Strategy as a decision-making process
is defined as:
‘Those decisions which have high mediumterm to long-term impact on the activities of the
organisation, including the implementation of
those decisions, to create value for customers
and key stakeholders and to outperform
competitors.’
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Levels of strategy
 Corporate strategy
 The portfolio mix of businesses held by a multibusiness organisation/corporation
 Business strategy
 Positioning relative to competitors to create
sustainable competitive advantage
 Functional strategy
 How functions of the business contribute towards
achieving the business strategy
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
A model of business strategy
The ESC-Gap Model
 Hubbard, Pocknee and Taylor’s ESCGap analysis model examines the
relationships and gaps between
Environment, Strategy, Capabilities and
performance.
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Components of the ESC-Gap model
 The Environment of the organisation
 industry environment
 macro-environment (all external environment
excluding industry)
 Business Strategies
 an assessment of vision, mission, values and
stakeholders
 Organisational Capabilities
 an assessment of resources and processes of
the organisation
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Components of the ESC-Gap model
 Performance analysis
 How is the business performing relative to:
 demands of the environment
 capabilities of the organisation
 expectations of stakeholders
 Gap analysis
 The detailed explanation of the performance
analysis, highlights shortcomings between
expectations and reality
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Components of the ESC-Gap model
 Strategic options
 What can be done to bridge the gaps
 Decision making
 Evaluating strategic options and choosing
the best option
 Implementation
 Putting the chosen strategy into action
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
mission
Key Stakeholders
Industry
Vision
Macro-environment
Environment
People
Functional
Values
Business Strategy
External
Consistency?
Economic
Systems
Capabilities
Internal
Consistency?
Performance
Key stakeholder
consistency?
Gap?
Gap?
Gap Analysis
Strategic Options
Decision making
Implementation
Functional strategies
Business strategies
Product-service Strategies
Market strategies
Generic strategies
Key stakeholder effects?
Competitor effects?
Systems
Structure
Leadership
People
Culture
Business plan
Performance
Performance
Measurement
Figure 1.3
Measures
Systems
Performance
Assessment
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Does strategy vary in different
countries?
 Most strategic thought has been developed
in the US, based on that economy
 Most economies are unlike the US economy
 Issues faced by companies in smaller
countries:
 small local markets
 central role of government
 role of the public sector
 limited capital markets
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Gross Domestic Product – OECD countries
(1995 values)
United States
10,000.0
Japan
Germany
9,000.0
France
United Kingdom
Italy
8,000.0
Spain
Canada
7,000.0
Korea
Netherlands
Australia
6,000.0
Mexico
Switzerland
5,000.0
Belgium
Sweden
Austria
4,000.0
Denmark
Turkey
3,000.0
Norway
Finland
Poland
2,000.0
Greece
Portugal
1,000.0
Ireland
New Zealand
Hungary
1995
1997
1998
1999
2000
Czech Republic
Luxembourg
Slovak Repubic
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education
Australia
Iceland
Does strategy vary in different
countries?
 Factors that are unique to a country
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history of the country
individual/national values
political systems
resource bases
 These factors combine to make each
country unique
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Does strategy vary in different
countries?
 The infrastructure of countries varies
 Ranging from almost none to highly developed societies
 Most countries significantly different to the US
 Especially Middle Eastern and Asian countries
 Strong and consistent move in most Western
countries towards philosophies, policies and
practices espoused in the US
 The role of the public sector as a participant in
industries and also as a regulator varies
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia
Summary
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Concept of strategy
Towards a definition of strategy
History of strategic thought
Theories used in the development of strategy
Three levels of strategy
Model of business strategy (ESC-Gap)
How different are smaller countries to each
other and the major economies?
Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia