CHAPTER ONE – INTRODUCING THE PRACTICE OF STRATEGY

Learning outcomes for this chapter:

1. Explain why strategic management is important to the organisation.
2. Define strategy and strategic management.
3. Describe the nature of strategic decisions.
4. Explain what success means in strategic terms.
5. Differentiate between the different levels of strategy.
6. Differentiate between emergent and deliberate strategies.
7. Explain why a pure process perspective on strategy is not appropriate.

 Strategy is an ancient concept whilst strategic management as it stands today originated in the
1970’s as organisations realised they needed more of an external focus
 Porters theories related to industry positioning and competitiveness (primarily differentiation)
emerged during the 1990’s as did the resource-based view (RBV) which advocates that
organisations should use internal resources and capabilities to achieve competitive advantages
(this produced a shift from what are the competitive advantages to understanding how the
competitive advantage was developed)
 Strategic management as with any management concept incorporates planning, organising,
leading and controlling (it is just at a higher level than other management functions and seeks to
incorporate all functions in the broader plan for the organisation)

Strategy formulation entails determining the direction in which the organisation should move and
generally consists of 5 steps:

1. Establish strategic direction via the vision and mission statement

2. Set strategic objectives (3 to 5 year periods)
3. Identify opportunities and threats in the external environment
4. Identify strengths and weaknesses in the internal environment
5. Strategic choice entails selecting strategies that will lead the organisation to achieve its
stated objectives

If strategy formulation is the ‘thinking’ part of strategic management, then strategy

implementation is the ‘doing’ part, strategy implementation includes the following elements:

1. Leadership and culture of the organisation

2. Competencies of the organisation
3. Systems of the organisation
4. Structure of the organisation
5. Cascading of strategies, policies and objectives

(See Figure 1.1 on p 6 for a graphical depiction of this)

New perspectives of strategic management include the following outlooks:

 Strategies are what people do and not what organisations have

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  Strategy is not solely the domain of top management
 Strategic management is not a neat and rational process
 Strategy is a constant conversation

What does it really mean to be ‘strategic’?

 Businesses cannot simply continue to do what they have always done and succeed in a fast
changing world, it is about adapting and constantly revising where you are going and what
you are doing
 Strategy spans the entire organisation and all business functions
 Strategy is not a quick fix or a small change, it requires constant effort over a long period of
time
 Strategy is not cheap or easy, it requires commitment of resources, time and energy
 Top management cannot control the entire strategy but they are responsible for whether
the strategy ultimately works or fails

How does one define strategy?

 It is the long term direction of the organisation

 It is a pattern in a stream of decisions
 It is how organisations achieve their objectives
 It contains both deliberate choices and unplanned emerging strategies
 It may simply be a believable story about the future of the organisation

STRATEGY IS PRIMARILY A HUMAN ACTIVITY, THE DIRECTION PROVIDED BY THE ACTIONS AND
DECISIONS OF STRATEGISTS IN PURSUIT OF THE ORGANISATIONAL GOALS

How has STRATEGIC MANAGEMENT been defined in the past and how is it defined now?

In the past strategic management has been defined as setting strategic direction, setting goals,
crafting a strategy, implementing and executing a strategy and then initiating any corrective action
needed over time. However, researchers and business people alike have determined that it is not so
simple – it is a messy, overlapping process that rarely operates according to plan BUT at the end of
the day the purpose of a strategy is to obtain a long term advantage over competitors.

It is stated that there are 4 key elements for a successful strategy, namely;

1. Clear and consistent long term objectives of what the business wants to achieve in the
future
2. A total understanding of the competitive environment in which it operates it
(opportunities/threats)
3. Knowledge of resources and capabilities the organisation has and understanding how these
can be used to develop a competitive advantage
4. Proper alignment of structure, systems, culture, functional and operational management to
ensure that plans and strategies can be implemented properly

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CONSISTENCY is key to obtaining clear strategic direction, there are three types of consistency, they
are:

a) Internal consistency – refers to how the organisation works (structure, systems, culture etc)
and how aligned all these aspects are with the strategy
b) External consistency – refers to how well aligned the organisations strategies are with the
opportunities and threats in the environment
c) Dynamic consistency – refers to how the organisation is making use of its resources and
capabilities in relation to the opportunities and threats presented in the external
environment (how well are they doing in their responses)

STRATEGIC DECISIONS ARE MADE BY PEOPLE AND CAN BE INLUENCED BY TWO FACTORS:
COGNITIVE OR RATIONAL ASPECTS AND POLITICAL PROCESSES

Some recommendations to help strategists in modern fast changing environments?

1. Develop several alternatives (have a backup plan)

2. Get real-time information (know what is going on)
3. Rely on experience and trusted advisors (do not depend on people who do not know what
they are doing)
4. Try to reach consensus, but not at all cost (sometimes decisions have to be made and a good
strategist will know when to make them)

THERE ARE THREE LEVELS OF STRATEGY: CORPORATE, BUSINESS AND FUNCTIONAL

CORPORATE STRATEGY

 Highest level, in charge of entire corporation strategy

 Normally a multi-corporation strategy and a multi-national strategy
 Normally listed (shares) and board of directors govern
 Dictates business strategy
 Objective is to create shareholder value

BUSINESS STRATEGY

 Individual to each business unit, in charge of the strategy for that particular business unit
 It is relative to the market(s) in which that business unit operates
 There will be a business unit manager or director in charge of that unit who is directed by
corporate strategy
 Objective is to create competitive advantage in the given market(s) and make that business
unit profitable
 Directs functional strategies

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FUNCTIONAL STRATEGY

 Refers to managing the functions (marketing, finance, operations, human resources, etc) of
individual business units
 Functional managers are in charge of how their function performs
 They are responsible for executing the business strategy as advised by business
director/manager

EXAMPLE – STRUCTURE OF FIRST RAND LIMITED: see separate document attached

DISCUSSION TOPIC: BASED ON THE ABOVE – HOW WOULD WE MEASURE

THE SUCCESS OF STRATEGY?

Summary of how the conventional view of strategy differs to the reality of it:

How do organisations achieve and maintain a competitive advantage VERSUS how to strategists
achieve and maintain a competitive advantage

Strategy is something organisations just have VERSUS all acts, documents and discussions are aligned
with what the strategy is set to achieve

Top management formulate and lower level managers implements VERSUS wide range of strategists
are involved and influence the process

The process is logical and rational VERSUS the process is messy, experimental and iterative

There is a careful separation between thinking and doing VERSUS thinking and doing often occurs
simultaneously

The key influences are cognition and microeconomics VERSUS key influences are cognition, politics,
microeconomics, and sociology

The ULTIMATE GOAL IS COMPETITIVE ADVANTAGE AND SUSTAINABILITY ACROSS THE BOARD