36 Concept of Corporate Strategy

Dr. Sulakshna Dwivedi

1.      Learning Outcome

2.      Introduction

3.      Concept of strategy

4.      Strategic Management – Meaning and Definitions

5.      Strategic Management Process

6.      Strategic Management Models

7.      Strategies and Competitive Advantage

8.      Summary

1.  Learning Outcome

After completing this module the students will be able to:

• Understand the concept of strategy and to know how it differs from tactics and policy
• Understand meaning and definitions of Strategic Management Understand the Strategic Management process
• Understand various Strategic Management models
• Understand competitive advantage – the ultimate purpose of competitive strategies

2. Introduction

“I keep six honest serving men. They taught me all I know. Their names are What, Why,

When, How, Where and Who”   – Rudyard Kipling

There is a paradigm shift in the way the businesses were being managed in early 1900’s and now. Earlier there were very few business houses who could sustain their names for a longer period of time because there was no cut throat competition at that time. For many years these business houses like Tata, Birla enjoyed the status of monopolies. But with the emergence of global economy, the fundamental nature of competition has changed. Now there are many players and competition is not high but hyper. Each player is struggling hard to grab the market share of others. These transformations are due to constant changes in different facets of environment. Changes in political, economic, social, ecological environment have bearing on the business.

Geographical boundaries are vanishing over the period of time and world has emerged as global economy. Developing nations are rapidly becoming developed nations. Because of technological advancements, organizations are becoming more and more tech savvy and surge of knowledge organizations is witnessed in the last few decades. There is explosion of data and information. Information exchange is so fast. According to a survey, India is the 2nd largest user of Facebook and Whats app after USA.

On the social and economic fronts there are lots of changes. Purchasing power of people is increasing, buying preferences are changing, and people are demanding goods and services from every nook and corner of the world. There is a great surge in the imported goods in the country.

Political system has witnessed a lot of tumult in the last one decade. After a very long period India has got its first stable and majority Government under the leadership of Sh. Narendra Modi. With the change in the leadership of the country lot many new changes, modifications, abolition have come. Recently Companies Act, 1956 has been changed to Companies Act, 2013 and some new Acts have been enacted and in certain acts some amendments are made.

Change in the corridors of politics brought changes in all facets of environment be it social, economic, technological, ecological etc.

With the change in the different facets of environment, India Inc. has also gone through radical changes. To cope up these changes and its profound impact on competition has forced Indian corporate world to be more agile and vigilant. Thus organizations are struggling hard and using strategic planning to manage their business. Therefore in today’s age surviving, sustaining and being competitive requires wisdom, analytics and craft which makes strategy creation an absolute necessity.

3.  Concept of strategy

Before knowing the meaning of Strategic Management lets understand what strategy is all about? The word strategy has its roots from the greek word ‘strategica’ or ‘strategos’ which means ‘general ship’ or the ‘art of winning the war’. The other greek equivalent for the modern world ‘strategy’ is ‘Strategike episteme’ (general’s Knowledge) and Strategon Sophia (general’s wisdom). A very popular Latin works in the domain of military strategy is written by Frontius is strategemata which means tricks of war or compilation of strategems.

The word ‘strategy’ stems from military. ‘Art of war’ written by Sun Tzu in 400 B.C. is till date considered as best work on military strategy. Had there been no enemies there would not have any strategies. The export of this word from military to business world would not have been possible without H.O. Igor Ansoff (Corporate strategy, 1965). Soon we had the word ‘competitive strategy’- a term coined by Michael Porter in his book ‘Competitive Advantage’.

Strategy is a set of competitive moves which are taken by top management of a firm so as to generate successful outcomes. Different authors have defined strategy in their own ways. Let us deliberate upon some definitions given by very famous authors of Strategic Management.

Kenneth Andrews (1955) defined strategy as “The pattern of objectives, purpose, goals and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or is to be”.

According to Alfred D. Chandler (1962), strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.

Igor Ans off (1965) explained the concept of strategy as “the common thread among the organizations, activities and product markets, that defines the essential nature of business that the organization was or planned to be in future”.

“Strategy is a mediating force between the organization and its environment: consistent patterns in streams of organizational decisions to deal with the environment” – Mintzberg (1979)

According to William F. Glueck (1984), strategy is a unified, comprehensive and integrated plan designed to assure that basic objectives of the enterprise are achieved.

Prahlad (1993) – Strategy is more then just fit and allocation of resources. It is stretch and leveraging of resources.

Porter (1996) – Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.

Igor Ansoff (1965) explained the concept of strategy as “the common thread among the organizations, activities and product markets that defines the essential nature of business that the organization was or planned to be in future”.

Based on various definitions one can see the shift in the viewpoints about strategy e.g. early authors have defined strategy as objectives, plans, goals (Andrew,1955; Chandler, 1962). While Ansoff (1965) emphasised on gap the strategy fills between ‘where the business is and where it has to be’. In the recent years Prahlad (1993) has put a resource based view of strategy while Porter (1996) has focused on value creation.

Mintzberg has identified the 5 P’s of strategy. Strategy could be a plan, a pattern, a position, a ploy, or a perspective.

1.  A plan, a “how do I get there”

2.  A pattern, in consistent actions over time

3.  A position that is, it reflects the decision of the firm to offer particular products or services in particular markets

4. A ploy, a manoeuvre intended to outwit a competitor

5. A perspective that is, a vision and direction, a view of what the company or organization is to become

On the basis of above definitions, following dimensions of strategy can be deduced:

• Decided by top level Management
• Course of action
• Allocation of resources
• Measures the direction of an organization
• Reduces uncertainty
• Futuristic in nature
• Pro-active in nature
• Helps to set clear objectives
• Connects short term and long term goals
• Ongoing and continuous process
• Bridges the gap between means and ends.
• Assures control
• Satisfies customers
• Satisfies all the stakeholders
• Bring financial and non – financial benefits

Factors included in strategies:

Bruce Henderson wrote in 1981 that “Strategy depends upon the ability to foresee future consequences of present initiatives”

He concluded that strategy development include, among other factors:

1)  Extensive knowledge about the environment, market and competitors;

2)  Ability to examine this knowledge as an interactive dynamic system; and

3)  The imagination and logic to choose between specific alternatives

Henderson wrote that strategy was valuable because of: “finite resources, uncertainty about an adversary’s capability and intentions; the irreversible commitment of resources; necessity of coordinating action over time and distance; uncertainty about control of the initiative; and the nature of adversaries’ mutual perceptions of each other.”

Difference between Strategy and Tactics

Strategy vs. Policy

Policies are the blueprints or guiding principles which stems from value system of top level management e.g. CEO, Owners, MD, CFO, BOD etc. which guide them in taking decisions. Strategies as we have discussed is a competitive move/game plan/course of action to achieve competitive advantage over rivals, gain customers’ trust and greater value for all its stakeholders. Policies are the guiding principles for strategists.

4.  Strategic Management – Meaning and Definitions

Kaufmann and Walleck (1980) discussed that a strategic management is:

(1) A planning framework that cuts across organizational boundaries and facilitates strategic decision making about customer groups and resources (2) A planning process that stimulates entrepreneurial thinking (3) A corporate values system that reinforces managers’ commitment to the company strategy (p. 158).

Strategic management is the process of managing the pursuit of organizational mission while managing the relationship of the organization to its environment (James M. Higgins, 1993).

Strategic management is defined as the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of the organization (John A. Pearce II and Richard B. Robinson, Jr., 1988).

Strategic management is the process of examining both present and future environments, formulating the organization’s objectives, and making, implementing, and controlling decisions focused on achieving these objectives in the present and future environments (Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell, 1991).

Hitt, Ireland and Hoskisson (1999) as they refer strategic management process as “the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns”. While Hitt et al’s (1999) use of the term has a strong bottom line focus, Mintzberg et al (1998) in an academic sense refer to strategic management as “revolving around the discrete phases of formulation, implementation, and control, carried out in cascading steps.”

Strategic management is a continuous process that involves attempts to match or fit the organization with its changing environment in the most advantageous way possible (Lester A. Digman).

Historically, a number of frameworks and models have been advanced which propose different normative approaches to strategy determination.

5. Strategic Management Process

Above definitions of strategic management basically focuses on process which include:

• Strategy formulation Strategy Choice
• Strategy Implementation
• Strategic Evaluation and Control

Strategy Formulation

• Identifying the business’s fundamental values which shape objectives and goals of an organization and setting vision, mission, goals and objectives of an organization.
• Assessing the business environment (External environmental analysis) to identify opportunities and threats to the business.
• To analyse the resources, capabilities in terms of strengths and weaknesses (Internal environmental analysis)

Strategy Choice

• To analyse various strategic alternatives and choosing the best one (Strategy Choice)
• Strategic alternatives include strategies at corporate level, business level (Generic strategies) and functional level

Strategy Implementation

It is action stage of strategic management process. In this stage short term and annual objectives are set, allocation of resources and coordination of all the activities are established. Strategic implementation included structural, behavioural, functional and operational implementation of strategy.

Strategic Evaluation and control

The last stage in the strategic Management process is strategic evaluation and control. The stage includes whether a particular strategy is leading the organization towards desired objectives because organisations don’t work under stable environment. As the internal and external environment keeps on changing hence make strategies amenable to change. Though we have discussed earlier that tactics are flexible and strategies are changed infrequently, therefore on the basis of constant evaluation and review, organization will come to know that there is any deviations which need to be corrected. Then corrective actions are taken to fix the problems.

6.   Strategic Management Models

Kenneth Andrews’ Models

In 1965, Kenneth Andrews developed a Strategic Management model which consist of one step i.e. Choice of a strategy. Later in 1971, Andrews revised the model and added one more step to Strategic Management process i.e. implementation. Thus Andrew’s model consists of following two stages:

• Strategic Choice
• Strategic Implementation

Glueck’s Model (1972)

William F. Glueck developed several models of strategic management based on the general decision-making process.

Strategy formulation “…to determine mission, goals, and values of the firm and the key decision makers”.

Environmental analysis” …to search the environment and diagnose the impact of the threats and opportunities”.

Strategic Choice“…to consider various alternatives and assure that the appropriate strategy is chosen”.

Strategy implementation “…to match plans, policies, resources, structure, and administrative style with the strategy”.

Strategy Evaluation and control “…to ensure strategy implementation will meet objectives”.

The Schendel And Hofer Model (1978)

Dan Schendel and Charles Hofer developed a strategic management model which consists of strategy formulation (which further includes three sub analysis namely – environmental analysis, resources analysis, and value analysis), strategy implementation, strategy evaluation and strategic control.

Schematic Model

As an aid in envisioning the strategic management process, this model was developed by Peter Wright, Charles Pringle and Mark Kroll (1994). It consists of five stages given as follows:

1.  Analyze the environmental opportunities and threats

2.  Analyze the organization’s internal strengths and weaknesses

3.  Establish the organizational direction: mission and goals

4.  Strategy formulation

5.  Strategy Implementation

6.  Strategic Control

7. Strategies and competitive advantage

Strategy is a course of action which enables an organization to achieve its goals. One of the major goals of any organization is to perform better than competitors and earnings to be commensurable with capital employed i.e. ROI (return on Investment) and relative profitability (profitability in comparison to other competitors in same or comparable Industry). Therefore through strategies, organizations gain competitive advantage i.e. an organization earns profit more than industry average. And when the organization earns such profits for some years consistently, these are called sustained competitive advantage.

Competitive advantage has its roots in resources and capabilities of an organization. Resources may be physical (tangible), and non- physical (Intangible).Tangible resources have monetary value and is materially present e.g. land, plants & machinery, tools & equipment, furniture & fixtures, building, vehicles, computers etc.

Intangible assets are incorporeal assets which have a certain useful life and an economic value e.g. goodwill, trademarks, copyrights, patents, intellectual property, licensing agreements, brand, Internet domains, etc.

Capabilities are the mechanisms which make these resources work for the organization to produce goods and services and to earn profits.

Resources and capabilities produce distinctive competencies of an organization i.e. specific strength e.g. cost leader, differentiated/ unique products or services that distinguish it from rival organizations. Distinctive competencies shape the strategies of an organization and the backward arrow depicts that strategies in turn build resources and capabilities which again lead to distinctive competencies which facilitate strategies. A strategy further enhances competitive advantage and further creates value (valuable products/services) for customers and other stakeholders (value in terms of dividend per share etc.)

Fig.1: Strategies, resources, capabilities and competencies

Source: Strategic Management –An integrated approach- Charles Hill and Gareth R. Jones

Sources of competitive advantage can be obtained both from external as well as internal environment. Various tools and techniques are used to understand the sources of competitive advantage e.g. PEST analysis (Political, economic, social and technological environment) and Porter’s five forces model which include threat of new entrants, threat of substitutes, bargaining power of customers, bargaining power of suppliers, industry rivalry. From internal environment methods like Value chain analysis, VRIO (Valuable, Rare, Costly to imitate and organized to capture value), BCG (Boston Consultancy Group) matrix are the main.

VRIO is a tool that analyzes internal resources. The tool was developed by Barney, J.B. (1991) in his work “firm resources and sustained competitive advantage. According to this tool if a resource is valuable, rare, costly to imitate and the firm is organized to utilize the value of resource then it is capable of creating sustained competitive advantage for the company.

The latest view on sources of competitive advantage has come from resource based view (RBV) that sees resources inside the organization as source of competitive advantage rather external factors in the competitive environment. This view emerged in 1980 and 1990’s after the seminal work of Wernerfelt B. (The Resource Based view of the firm) and Hamel and Prahlad (The core competence of the corporation) and Barney J. (Firm resources and sustained competitive advantage).

Resource based view relies on resources which as discussed above can be both tangible and intangible. According to the author tangible resources can no longer be source of competitive advantage because sooner the competitors will acquire these. Intangible resources are main and important source of competitive advantage as the organizations take long to build these resources and theses cannot be easily bought from the market because these needs to be earned over the period of time.

Another assumption for these resources is that these should be heterogeneous and immobile. The resources, skills, capabilities of one company should differ from the other so that the rivals could not employ same strategies to compete with each other and second these resources should not be mobile meaning hereby that competitors should not be able to copy these. Intangible resources are usually immobile. Last assumption is that these resources should follow VRIO framework that is valuable, rare, costly to imitate and company is organized enough to utilize the value of resources. If resources fulfill all these assumptions, then certainly they are going to provide sustainable competitive advantage.

9. Summary

The word strategy has evolved and continues to evolve over the period of time because change is the name of the game. Strategies of yesterday are no more usable today or will be tomorrow. H. Igor Ansoff got the credit to bring this world to business world from military. Even this discipline has observed a complete transformation from Business policy to strategic management. In 1950’s the focus was on budgetary planning and control, in 1960’s long range planning, in 1970’s on portfolio approach in 1980’s competitive strategy and competitive advantage in 1990’s core competency and resource based view of strategy and in 2000 on strategic innovation. Next a distinction has been made between strategy and tactics. Tactics are sub strategies that are used to implement strategies. Strategies are infrequently changed while tactics are amenable to change because change in the business environment. If strategy is a journey than tactic is a trip.

Strategic management process involves various steps and to understand or to get a logical insight into these stages an historical evolution of Strategic Management Models was done. We started it with Kenneth Andrews’s model in 1957 and concluded with Schematic model in 1995. On the basis of various models, a general present day model has been presented at the end which includes stages like strategy formulation which further consists of Environmental analysis, strategic intent; Strategic choice; Strategy implementation and strategy evaluation and control.

The prominent purpose of any organization is to achieve superior performance or to gain a competitive advantage over the rivals. In the end a connection has been presented among strategies, resources, capabilities, competencies and competitive advantage. And the recent resource based view of resources has been discussed that helps creating sustained competitive advantage.

Few important sources to learn more about Concept of Corporate Strategy:

1. Andrews, Kenneth (1980). The Concept of Corporate Strategy, 2nd Edition, Dow-Jones Irwin.
2. Bryson, John M. (1995). Strategic Planning for Public and Non-profit Organizations, Jossey-Bass.
3. Chandler, Alfred Jr. (1962). Strategy and Structure: Chapters in the History of the American Industrial Enterprise. MIT.
4. Cherunilam, Francis (2002). Strategic Management, New Delhi: Himalaya Publishing Company.
5. Fred R. David (2003). Strategic Management, New Jersey: Prentice-Hall, Inc.
6. Kachru Upendra (2005). Strategic Management- Concepts and Cases, New Delhi: Excel Books.
7. Kazmi Azhar (2002). Business policy and Strategic Management, New Delhi: Tata Mc Graw Hill.
8. Lomash Sukul and Mishra P.K. (2003). Business policy and Strategic Management, New Delhi: Vikas Publishing House.
9. Porter, Michael (1986). Competitive Strategy. Harvard Business School Press.
10. Thomas L. Wheelen and Hunger J. David (2002). Concepts in Strategic Management and Business Policy, New Delhi: Pearson Education Asia.
11. Thompson and Strickland (2003). Strategic Management: Concepts and Cases, New

Delhi: Tata McGraw Hill