1 CONCEPT OF STRATEGY

1.Learning Outcomes

After studying this module, you shall be able to

1.             Understand the concept of strategy

2.             Differentiate between strategy and related concepts

3.             Learn about the evolution of strategy as a concept

4.             Learning different levels of strategy

5.             Understand various schools of thought on strategy formulation

6.             Learn about the concept of strategic management

7.             Learn about benefits of strategic management

8.             Learn about limitations of strategic management

2. Understanding Strategy

The concept of strategy is fundamental to the process of strategic management. The word strategy comes from Greek strategos, which refers to generalship. The concept and practice of strategy and planning started in the military, and overtime, was applied to business and management. The key objectives of both business strategy and military strategy are the same, i.e. to secure competitive advantage over the rivals.

In simplified terms, a strategy is the means to ends, and these ends concern the purpose and objectives of the organisation. They are the things that businesses do, the paths they follow, and the decisions they take, in order to reach certain points and level of success. It relates to developing the long-term scope of an organisation, in such a way so as to deliver competitive advantage to the organization. Strategy is a tool for utilizing resources and skill sets dynamically in a changing environment and thereby, meeting market needs and fulfill stakeholders’ expectations.

A strategy could be –

• A plan or course of action making a pattern or common thread;
• The pattern related to the organisation’s activities drawn from its the policies, objectives and goals;
• Associated to practising activities to take the organisation from its current state to aspired position;
• Related to various resources needed for implementation of organisational plans;Connected to strategic positioning of a firm, making trade-offs between its different activities and creating a fit among these activities; and
• The planned or actual coordination of the firm’s major goals and actions, in time and space that continuously co-align the firm with its environment (Farajoun, 2002).

3. Policy, Strategy & Tactics

Thompson and Strickland (2001) have given a comprehensive definition of strategy as:

“A company’s strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, and achieve organisational objectives.” Another approach on strategy is of Michael Porter, where he has described strategy as:

“.. developing and communicating the company’s unique position, making trade-offs, and, forging fit among activities.”

A term often confused with strategy is ‘Policy’; however, it is a different concept from strategy. ‘Policy’ is derived from a Greek work Politeia meaning ‘polity’ i.e. the state and the citizens. The dictionary meaning of policy is the art or manner of governing a nation or the principles on which any measure or course of action is based. Therefore, policy is the prescribed guidelines for governing actions of an organisation with respect to given objectives.

According to Kotler, “Policies define how the company will deal with stakeholders, employees, customers, suppliers, distributors, and other important groups. Policies narrow the range of individual discretions so that the employees act consistently on important issues.”While comparing Strategy and Policy, it is derived that

a)      Policy is a broader or more general concept in the form of guidelines or principles; however, Strategy is more specific as it relates to a particular situation, objective or target.

b)      Policy generally comes first; and strategies are considered as element of policy.

Another term tactics is also at times confused with strategy, however, from an overall strategy, a number of sub-strategies follow. These sub-strategies are referred as tactics. Tactics are the specific activities which deliver and implement the strategies in order to fulfil objectives and pursue the mission. Often short term; they can be changed frequently if necessary.

Examples – Strategy v/s Tactics

• Developing all-rounders in a cricket team => Strategy and sending Irfan Pathan at # 3 is Tactic.
• In army mission, beefing up infantry on the desert borders but attacking via water orders => Strategy and Deploying Submarines / Frigates is Tactic.
• In a business scenario, Mittal Steel (before Arcelor) acquiring a string of ailing steel plants => Strategy and Systematically cutting costs (there) requires Tactic.

The distinction, or rather the relationship, between strategy and tactics can be discussed on the basis of five major factors:

• Significance – Strategies have more significance or greater consequences for an organisation than tactics as strategic decisions generally affect the entire organisation or a significant part of the organisation. Tactics may affect only a particular supplier or a particular sale or a customer.
• Level of formulation or conduct – Strategies are formulated at senior or top management level and within overall strategy, tactic are employed by middle and lower levels of management.
• Information base – As strategies have significant impact on an organisation, these are framed with extensive information relating to the company’s resources, operations, environment, competitors, customers etc. For tactical decisions the information requirement are lesser and only relates to a smaller part of the organisation
• Objectivity/ Subjectivity – Strategies are generally framed by teams and not by individual managers as these are based on detailed analysis of information or data, which renders enough objectivity to strategies. Tactics are more subjective and are sometimes left to the discretion of individual managers.
• Periodicity or Time Horizon – Strategies are generally long-term, are not made or changed frequently. It takes time to formulate strategies and to determine their effectiveness; therefore, strategies have larger periodicity or time frame. Tactics, on the other hand, can change quite frequently.

Now, while comparing policy, tactics and strategy it is clear that policy comes before strategy and strategy comes before tactics. However, all these concepts are closely interrelated and play crucial roles in the management of a company.

4. Evolution of Strategy as a Concept

Over the years, many authors have discussed the concept of strategy and have given varied approaches relating to strategy. However, the concept is still evolving; some authors have laid the foundations of the concept and given different definitions of strategy. Some of the major contributors in the conceptualisation of strategy are mention below –

Alfred D Chandler (1962)

Chandler analysed the dynamic relationships between business environment, organisations and strategy. While studying the organisational change in the US, Chandler defined strategy as: “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.”

Kenneth Andrews (1965)

Andrew is known for being a part of the group of professors who contributed in developing the subject of Business Policy. He 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.”

Igor Ansoff (1965)

Ansoff, explained corporate strategy as: “The common thread among the organisation’s activites and product-markets… that defines the essential nature of business that the organisation was or planned to be in future.”

William F Glueck (1972)

Glueck discussed strategy as “a unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved.” He emphasised on three terms namely unified, comprehensive and integrated to describe a plan. Where ‘Unified’ refers to connecting all the divisions of an enterprise with one another; ‘comprehensive’ means including all the critical aspects, and ‘integrated’ means making all components of the plan assimilate with one another.

Igor Ansoff (1984)

Ansoff, while contributing to the field of strategic management in 1984, again explained corporate strategy as: “a set of decision-making rules for the guidance of organisational behaviour.”

Henry Mintzberg (1987)

Mintzberg opined that strategies not necessarily arise from logical planning but may also result from what is unplanned. He defines strategy as: “a pattern in a stream of decisions and actions.” He also distinguished between intended and emergent strategies where intended strategies referred to the plans that managers develop and emergent strategies relate to the activities that actually happen. Therefore, an organisation may begin with a planned and calculated design of strategy and result in another strategy that is in reality realised.

Michael E Porter (1996)

The contributions of Porter in the conceptualisation of strategy are valuable. He is known for his ideas on competitive advantage, five forces model, generic strategies and value chain. He discussed strategy as the locus of general management and describes it as “developing and communicating the company’s unique position, making trade-offs, and forging fit among activities.”

Strategic position is based on customer’s needs, customer’s accessibility, or the assortment of products and services offered by the company. A company in order to build a competitive advantage has to work on creating a unique proposition by selecting actions distinct from those of its counterparts, or on executing similar activities in distinctive ways. However, in order to get a sustainable strategic position, companies have to create a fit of activities by trade-off between different activities to ensure that they relate to each other.

These works of the authors attempt to define the concept of strategy with clarity and precision.

5.  Levels of Strategy

In organisations, a single strategy is often inadequate; in fact organisations need multiple strategies at different levels. In order to divide different units or segments, each performing a common set of activities, many companies create operating divisions. Such divisions may also be referred to profit centres or strategic business units (SBUs). An SBU, as defined by Sharplin, is “any part of a business organisation which is treated separately for strategic management purpose.”

SBUs are involved in a single line of business where each of the SBUs has its own functional departments while the common functions are grouped under corporate level. The different levels of strategy could be at corporate level, the SBU level and at functional level.

Corporate level strategy is the overall action plan including all the functions executed by different SBUs. The plan relates to objectives of the company, resource allocation and coordination of the SBUs for best possible results.

SBU level strategy is a complete plan relating to the objectives of SBUs, resources allocated to different functional divisions and coordinate so as to achieve corporate level objectives.

Functional level strategy deals with defining objectives of one specific function, allocating resources among different operations within a function and coordinating between them in order to achieve the SBU and corporate-level objectives.

6. Schools of Thought on Strategy Formulation

The subject of strategic management is still evolving. In the course of its development, several aspects of the concept are emerging, which are gradually leading to a convergence of views. This is an indication of the maturing of the subject. Mintzberg and his associates have given ten schools of thought on strategy formulation. These schools of thought are classified in three groups.

The Prescriptive School

1.      The Design School

2.      The Planning School

3.      The Positioning School

4.      The Entrepreneurial School

5.      The Cognitive School

6.      The Learning School

7.      The Power School

8.      The Cultural School

9.      The Environmental School

10.    The Configuration School

A detailed explanation of these schools of thoughts is given below –

1.The Design School – This school of thought developed in late 1950s and 1960s, Selznick (1957) and Andrews (1965) perceived strategy formation as a process of conception. This school of thought looks at strategy as a unique plan. The chief executive officer creates and leads the strategy formulation process, which is simple and informal, based on judgement and thinking.

2.The Planning School – This school developed in late 1960s, Ansoff (1965) mainly contributed to this school and explained strategy formation as a formal process, wherein strategy is divided into smaller sub-strategies and programs. The lead role in the strategy is played by the planners. The process strategy formation is formal and deliberate.

3. The Positioning School – In late 1970s and 1980s, Schendel and Hatten (1970s) and Porter (1980s) formed positioning school. They considered strategy as the organisation’s planned generic positions chosen by analysing competition and industry in which the organisation operates. The strategy formation is done by the analysts. The process of strategy formulation is analytical, systematic and deliberate.

4. The Entrepreneurial School – This school of thought developed in 1950s with the contribution of Schumpeter (1950s), Cole (1959) and several other authors who considered strategy formation as a visionary process. This school viewed strategy as a result of personal and unique perspective often aimed at the creation of a niche. The strategies are formulated by the entrepreneur or leader and the process of strategy formation is instinctive, far-sighted and largely deliberate.

5. The Cognitive School – In 1940s and 1950s this school regarded strategy as an individual concept, a result the mental perspective. The strategy formation is done by the thinker-philosopher. Simon (1947, 1957) and March and Simon (1958) contributed to the cognitive school and regarded strategy formation is mental and emergent process.

6. The Learning School – Emerging from 1950s through 1990s, this school considered strategy formation as an emergent process. Strategy is seen as a unique pattern and the process of strategy formation is new, informal and unorganized. The strategy formation is done by learner within the organisation. Few of the contributors to learning school are Lindblom (1959, 1960), Cyert and March (1963), Weick (1969), Quinn (1980) and Prahalad and Hamel (early 1990s).

7. The Power School – Developed during 1970s and 1980s, this school regarded strategy formulation as a negotiation process, a political and cooperative process. The main task of strategy formation is performed by anyone in power (micro level) and the whole organisation (macro level). This process of strategy formation is chaotic, may lead to conflict, aggression and lack of cooperation. Allison (1971), Pfeffer and Salancik (1978) and Astley (1984) were major contributors to this school.

8. The Cultural School – Rhenman and Normann (late 1960s) mainly contributed to this school and perceived strategy formation as a collective process. Here, strategy is considered as a unique and collective perspective. Strategy formulation is done by collectivism displayed within the organisation and the process of strategy formation is ideological, constrained, collective and deliberate.

9. The Environmental School – This school developed mainly in 1960s and 1970s, and regards strategy formation as a reactive process. This school regards strategy as something generic, occupying specific positions or niche in relation to the environment. Strategy formulation is passive, imposed and emergent; environment is regarded as an entity and plays a major role in strategy formation.

10. The Configuration School – This school emerged in 1960s and 1970s, major contributors of the school include Chandler (1962), Mintzberg & Miller (late 1970s), Miles and Snow (1978). The school regards strategy as a transformation process; that matches any process discussed under the nine schools of thought. The process of strategy formation is integrative and sequential. Additionally, it could also incorporate other elements pointed out under the nine schools of thought. Strategic management as a broader concept of management, considers all the managerial problems, issues, the processes of solving them and also many other variables that operate in a problem-solving environment.

7. Strategic Management

Strategic decision-making is done through the process of strategic management, which has been defined by different authors. The following three definitions present a complete overview of the concept.

‘Strategic management is that set of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives.’

– F.Glueck

‘Strategic management is defined as the set of decisions and actions in formulation and implementation of strategies designed to achieve the objectives of an organisation.’

– W.F. Glueck

‘Strategic management is primarily concerned with relating the organisation to its environment, formulating strategies to adapt to that environment, and, assuming that implementation of strategies takes place.’

– Pearce & Robinson

All the management functions of a company can be broadly classified into two categories –strategic and operational. Strategic functions are performed more at the senior and top management level, and operational functions are performed more by middle and lower management levels. In other words, as the level of management moves up, the managers perform more strategic functions and less operational functions.Strategic management is an art as well as science of formulating, implementing and evaluating decisions across functional areas to help an organisation in achieving its objectives. It focuses on integrating management, marketing, finance, production, R&D and IT to achieve organisational success. In business world, the terms strategic planning and strategic management are used interchangeably. The rationale of strategic management is to utilize and develop new and different opportunities for future.

8. Benefits of Strategic Management

Strategic management allows organisations to shape their own destinies by becoming more proactive than reactive; it allows organisations to initiate and influence activities to control its future. The major advantage of strategic management is to help organisations to formulate better strategies by following a methodical, rational approach while making strategic choice.

One key focus of the strategic management is on getting the understanding of and commitment from all managers and employees. Understanding is probably one of the most important benefits of strategic management, followed by commitment. In cases where employees and managers understand what the organisation is doing and why, they often feel they are a part of the firm and become committed to assisting it. This also enables employees to understand the linkages between their own compensation and organisational performance.

Another great benefit o strategic management is that it empowers the individuals. Empowerment means strengthening employees’ sense of effectiveness by involving them in decision-making and to exercise initiative and imagination, and rewarding them for doing so.

Financial Benefits

Research indicates strategic management helps organisations to become more successful and profitable than their counterparts. Systematic planning prepares organisations for uncertain future and also generally shows better financial performance in comparison to their industry. Further, these enterprises are also expected to make more informed decisions by analysing both short and long-term consequences.

The strategic management practices may help a company by yielding following benefits –

• Increased sales
• Improved profitability
• Enhanced productivity

Non Financial Benefits

In addition to the financial benefits, strategic management offers other intangible and non financial benefits. Some of these befits are –

• Enhanced awareness of external threats
• Improved understanding of competitors’ strategies
• Increased employee productivity
• Reduced resistance to change
• Clearer understanding of performance-reward relationships.
• Promotes interaction among managers at divisional and functional levels by enhancing the problem prevention capabilities
• Encourages order and discipline in the organisation
• Creates efficient and effective managerial systems
• Establishes confidence in current business strategy and highlights need for corrective measures
• Provides basis for identifying and rationalising the need for change
• Helps the employees to view change as an opportunity

Greenly stated the below mentioned benefits of strategic management –

1.             Permits organisations to identify, prioritise and exploit opportunities.

2.             Gives an unbiased and real picture of management problems.

3.             Provides guidelines to stimulate coordination and control of activities.

4.             Reduces the impact of adverse conditions and changes in the business environment.

5.             Helps in taking good decisions to support established objectives.

6.             Allows effective allocation of time and resources to identified opportunities.

7.             Helps in reducing the wastage of resources and time.

8.             Encourages internal communication.

9.             Integrates the behaviour of individuals into total effort.

10.         Defines clear individual responsibilities.

11.         Promotes forward thinking.

12.         Provides cooperative and integrated approach to deal with problems and opportunities.

13.         Stimulates a favourable attitude toward change.

14.         Creates discipline in the management of a business.

9. Limitations of Strategic Management

Strategic management and planning is a complex process, thus has some major limitations –

a)   Analysing a complex and dynamic environment – Complete information or details on environmental changes including markets and competitors, are hardly available. Thus, companies have to act on incomplete information or database.

b) Plans, frameworks and system mean rigidity – Strategic planning or management reduces flexibility and individual initiatives. All systems imply certain amount of rigidity.

c)  Limitation in implementation – A strategy may be well conceived and formulated, but there may be problems in implementation arising out of internal conflicts, lack of co-ordination, lack of support from top management etc.

d)   Inadequate appreciation by the management – The planning and executing teams may not get adequate appreciation or reward from the top management when their strategies succeed, but, in case of failure, management may not accept the situation. This often discourages initiative and new thinking.

In addition to the above mentioned limitation, some mistakes are commonly committed by companies while approaching strategic management/planning. These pitfalls or mistakes are–

• Undertaking strategic planning only to satisfy company policy or regulatory requirements laid down;
• Using it to get control over decisions and resources;
• Top managers not actively supporting the strategic planning process;
• Top managers taking independent decisions which conflict which conflict with the strategic planning process;
• Failing to inform the plan to employees
• Delegating planning to some third party or planner rather than including the concerned managers;
• Failing to involve key managers or employees in different stages of process;
• Failing to make use of the plan as a standard for measuring performance;
• Viewing planning to be an unnecessary or unimportant exercise;
• Failing to generate a conducive climate in the organisation which may support the change;
• Being engrossed in current problems that strategic planning has neglected or has paid insufficient attention to;
• Being very formal in planning and completely overlooking flexibility and creativity.

10. Summary

• A strategy is the means to ends for an organisation.
• It is a plan or course of action.
• It is related to the organisation’s activities which are drawn from the policies, objectives and goals.
• Strategy is mostly about the long-term actions, moulded by overall purpose & mission of the organisations.
• Strategy should lead to competitive advantage and help win market battles against competition.
• It must be backed by resources & skill-sets.
• Operations (Tactics) must align with Strategy.
• Strategy must adapt to environmental influences and help to deliver on various expectations.
• Strategy is different from Policy and Tactics.
• The evolution of strategy as a concept and different authors’ view of strategy.
• Strategy operates at different levels of an organisation. The different levels of strategy could be at corporate level, the SBU level and at functional level.
• Strategy formulation has been divided into ten schools of thought as given by Mintzberg and his associates. These schools of thought are classified in three groups viz. prescriptive school, descriptive school and integrative school.
• Strategic management is an art as well as science of formulating, implementing and evaluating decisions across functional areas to help an organisation in achieving its objectives.
• The major advantage of strategic management is to help organisations to formulate better strategies by following a methodical, rational approach while making strategic choice.
• The strategic management practices may help a company by yielding following financial benefits i.e. increased sales, improved profitability and enhanced productivity.
• In addition to the financial benefits, strategic management offers other intangible and non financial benefits to the organisation.
• Strategic management and planning is a complex process, thus has some major limitations related to changing environment, rigidity, implementation issues etc.

REFERENCES

• David, F. R. (2011). Strategic Management – Concepts and Cases. 13th Edition. New Jersey: Prentice Hall.
• Kazmi, A. (2010). Strategic Management and Business Policy. 13th Edition. New Delhi: Tata McGraw Hill.
• Nag, A. (2011). Strategic Management – Analysis, Implementation, Control. New Delhi: Vikas Publishing.