Defining Strategy

Prof. Dr. Markus Reihlen

Prof. Dr. Markus Reihlen 1
Leuphana University of Lüneburg
 The concept of strategy

choice choice choice

discover learning discover learning discover learning

process process process

action action action

Other firms in
the environment
Consequences Consequences Consequences
Consequences Consequences

Firm A

action choice
action

discover discover discover learning

learning learning
process process process

choice choice action

Snap shot: Snap shot: Snap shot:

-Posture -Posture -Posture
-Position -Position -Position
- Performance - Performance - Performance

Time
t t t t
-1 0 1
Prof. Dr. Markus Reihlen 2
Source: Stacey, R.D.: Strategic Management
Leuphana University of Lüneburg and Organisationals Dynamics, London 1993,
p. 4
The concept of strategy - Example of Microsoft
Adaptation to Windows
Apples Operating System (Lotus, WordPerfect)
Netscape
choice choice choice

discover learning discover learning discover learning

process process process

action action action

Other firms in
the environment
Consequences Consequences Consequences
Consequences Consequences

Firm A

action choice
action

discover discover discover learning

learning learning
process process process

choice choice action

Snap shot: Snap shot: Snap shot:

-Posture -Posture -Posture
MS-DOS of IBM -Position
- Performance
Windows 3.0 -Position
- Performance
MS-Office -Position
- Performance
Explorer
Time

1980
Prof. Dr. Markus Reihlen
t
-1
1990 t
0 t
1
t
Source: Stacey, R.D.: Strategic Management
3
Leuphana University of Lüneburg
and Organisationals Dynamics, London 1993,
 Static and Comparative-static Analysis of a Strategic
Situation

§ Posture
§ Product market combinations of the firm
§ Applied technologies
§ Organizational structure and management controls of the firm
§ Dominant beliefs, values and norms of organizational members
(corporate culture)
§ Position
§ Bargaining power of customers, suppliers, etc.
§ Competencies in relation to competitors
§ Market shares
§ Customer image

Prof. Dr. Markus Reihlen 4

Leuphana University of Lüneburg
 Measures for a Firm‘s Accounting Performance
Ratio Calculation Interpretation

Profitability Ratios
Return on total assets (ROA) Profits after taxes Measures return on total investment.
Total assets Larger is usually better.

Return on equity (ROE) Measures return on total equity investment. Larger is

Profits after taxes
usually better.
Total stockholders‘equity

Gross profit margin Measures sales available to cover operating expenses

Sales-cost of goods sold and still generate profit.
Sales Larger is usually better.

Earnings per share (EPS) Measures profit available to owners of common stock.
Profits (after taxes) Larger is usually better.
Prefered stock dividends
Number of chares of common stock
outstanding

Price earnings ratio (p/e)
Current market price/share
After-tax earnings/share
Measures anticipated firm performance-high p/e ratio
tends zo indicate that the stock market anticipates
strong future performance.
Larger is usually better.

Cash flow per share Funds available to fund activities above current level of
After - tax profits + depreciation costs. Larger is usually better.
Number of common shares outstanding

Liquidity Ratios
Leverage Ratios
Activity Ratios
Source: Barney/Hesterly, Strategic Management and Competitive Advantage, Upper Saddle River, 2006, p. 18
Prof. Dr. Markus Reihlen 5
Leuphana University of Lüneburg
 Performance as a Multidimensional Construct: The
"Balanced Scorecard"

Source: Kaplan, R. S., & Norton, D. P. 2007. Using the balanced scorecard
Prof. Dr. Markus Reihlen as a strategic management system. Harvard Business Review, July-August: 153. 6
Leuphana University of Lüneburg
 From Economic to Corporate Sustainability
Performance

Economic
performance

Social
Ecological performance
performance

Prof. Dr. Markus Reihlen 7

Leuphana University of Lüneburg
 Activity

§ Try to define strategy.

Prof. Dr. Markus Reihlen 8

Leuphana University of Lüneburg
 Four P‘s of Strategy

§ Strategy as a Plan
“Strategy is a direction, a guide or course of action into the future, a path to
get from here to there. Strategy as a plan looks ahead.“
§ Strategy as a Pattern
“Strategy is consistency in behaviour over time; it can be intended or not.
Strategy as a pattern looks at past behaviour.“
§ Strategy as Position
“Strategy is a means of locating an organization in the environment.
Strategy becomes the mediating force between the internal and external
context.“
§ Strategy as Perspective
“Strategy is a perspective that is shared by the members of an
organization and exercised on a collective yet consistent basis. It is the
paradigma of the organization.“

Source: Mintzberg: The Strategy Concept I: Five Ps for Strategy, in: California Management Review, Fall 1987, vol. 30, iss. 1, pp. 11-24.

Prof. Dr. Markus Reihlen

9
Leuphana University of Lüneburg
 What is strategy? Two statements

MICHAEL PORTER HENRY MINTZBERG

Prof. Dr. Markus Reihlen 10

Leuphana University of Lüneburg
 Video: Strategy according to Michael Porter

https://www.youtube.com/watch?v=NY4myVa5Wkw
Prof. Dr. Markus Reihlen 11
14.10.21
Leuphana University Lüneburg
 Four P‘s of Strategy

§ Strategy as a Plan
“Strategy is a direction, a guide or course of action into the future, a path to
get from here to there. Strategy as a plan looks ahead.“
§ Strategy as a Pattern
“Strategy is consistency in behaviour over time; it can be intended or not.
Strategy as a pattern looks at past behaviour.“
§ Strategy as Position
“Strategy is a means of locating an organization in the environment.
Strategy becomes the mediating force between the internal and external
context.“
§ Strategy as Perspective
“Strategy is a perspective that is shared by the members of an
organization and exercised on a collective yet consistent basis. It is the
paradigma of the organization.“

Source: Mintzberg: The Strategy Concept I: Five Ps for Strategy, in: California Management Review, Fall 1987, vol. 30, iss. 1, pp. 11-24.

Prof. Dr. Markus Reihlen

12
Leuphana University of Lüneburg
 Video: Henry Mintzberg on Strategy

https://www.youtube.com/watch?v=4srFC0de4ww
Prof. Dr. Markus Reihlen 13
Leuphana University Lüneburg
 Four P‘s of Strategy

§ Strategy as a Plan
“Strategy is a direction, a guide or course of action into the future, a path to
get from here to there. Strategy as a plan looks ahead.“
§ Strategy as a Pattern
“Strategy is consistency in behaviour over time; it can be intended or not.
Strategy as a pattern looks at past behaviour.“
§ Strategy as Position
“Strategy is a means of locating an organization in the environment.
Strategy becomes the mediating force between the internal and external
context.“
§ Strategy as Perspective
“Strategy is a perspective that is shared by the members of an
organization and exercised on a collective yet consistent basis. It is the
paradigma of the organization.“

Source: Mintzberg: The Strategy Concept I: Five Ps for Strategy, in: California Management Review, Fall 1987, vol. 30, iss. 1, pp. 11-24.

Prof. Dr. Markus Reihlen

14
Leuphana University of Lüneburg
 Four P‘s of Strategy

§ Strategy as a Plan
“Strategy is a direction, a guide or course of action into the future, a path to
get from here to there. Strategy as a plan looks ahead.“
§ Strategy as a Pattern
“Strategy is consistency in behaviour over time; it can be intended or not.
Strategy as a pattern looks at past behaviour.“
§ Strategy as Position
“Strategy is a means of locating an organization in the environment.
Strategy becomes the mediating force between the internal and external
context.“
§ Strategy as Perspective
“Strategy is a perspective that is shared by the members of an
organization and exercised on a collective yet consistent basis. It is the
paradigma of the organization.“

Source: Mintzberg: The Strategy Concept I: Five Ps for Strategy, in: California Management Review, Fall 1987, vol. 30, iss. 1, pp. 11-24.

Prof. Dr. Markus Reihlen

15
Leuphana University of Lüneburg
 Video: Mintzberg on the Honda Effect

Prof. Dr. Markus Reihlen 16

Leuphana University of Lüneburg
 The link between planned and emergent strategy

Int
en
de
d str
ate
gy

De
libe
rat
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tra
teg
Unrealized y
Strategy
Realized Strategy

rategy
t
gent S
er
Em

Source: Mintzberg: The Strategy Concept I: Five Ps for Strategy, in: California Management Review, Fall 1987, vol. 30, iss. 1, p. 14.
Prof. Dr. Markus Reihlen 17
Leuphana University of Lüneburg
 Strategic Management as Quest for Competitive
Advantage
Strategic management domain:
§ Why are firms successful?
§ Why do firms consistently outperform others?

Strategic management theory‘s core argumentation:

(sustained) (sustained)
source competitive superior
advantage performance

Prof. Dr. Markus Reihlen 18

Leuphana University of Lüneburg
What do you think you should take home
from this session?

Write down what you think was important!

Prof. Dr. Markus Reihlen

Leuphana University of Lüneburg 19
Review Questions

§ The concept of strategy relates the firm to its environment. When industries
become more dynamic and therefore less predictable, how does this change
strategy? Do firms stop making long-term plans? If so why? If not, how does
this change the nature of long term plans and planning.
§ Read the article from Porter & Kramer (2006): What is their position how
business and society is interrelated? Do you share their position? If so why, if
not, why not.
§ Is it possible to distinguish between an emergent strategy and an ad hoc
rationalization of a firm‘s past decisions? Can the concept of an emergent
strategy be prescriptive? Why or why not?
§ What is the Honda-Effect according to Henry Mintzberg?
§ The 4 P’s of strategy are related to each other. Use a practical example and
explain how in this particular case strategy as plan, as pattern, as position,
as perspective is likely to be related.

Prof. Dr. Markus Reihlen

Leuphana University of Lüneburg 20
References

§ Grant, R. (2010). Contemporary strategy analysis (10th ed.). Oxford: Blackwell.

§ Habersang, S., Küberling-Jost, J., Reihlen, M., & Seckler, C. (2019). A process perspective on
organizational failure: A qualitative meta-analysis. Journal of Management Studies, 56(1), 19-56.
§ Mintzberg, H. (1987). The Strategy Concept I: Five Ps for Strategy, in: California Management
Review, 30(1), 11-24.
§ Kaplan, R. S., & Norton, D. P. 2007. Using the balanced scorecard as a strategic management
system. Harvard Business Review, July-August, pp. 97-108.
§ Porter, M. E., & Kramer, M. R. (2006). Strategy & Society. Harvard Business Review, 84, 1-14.
§ Stacey, R.D (1993). Strategic Management and Organisational Dynamics, London.

Prof. Dr. Markus Reihlen

Leuphana University of Lüneburg 21