Anthony E.

Henry

Henry: Understanding Strategic

Management

Chapter 1: What is Strategy?

© Oxford University Press, 2018. All rights reserved.

 Learning objectives

• Explain what is meant by strategy

• Understand the role of values, vision, and
mission in facilitating strategy
• Describe the changes in the approach to
strategy
• Identify different perspectives on strategy
formulation
• Develop a strategic management framework

Henry: Understanding Strategic Management, 3rd edition

 Strategy

A plan of action designed to

achieve a long-term or overall
aim.
(Oxford Dictionary)

Henry: Understanding Strategic Management, 3rd edition

 What is strategy?

• Strategy has a long antecedent – Sun Tzu The Art of War

• Strategy is about achieving a competitive advantage - Competitive advantage is

the configuration of an organization’s activities which enable it to meet consumer
needs better than its rivals. Its source derives from the discrete activities that a
company performs when it designs, produces, markets, delivers, and supports
its product or service. If a competitive advantage is to be sustainable, however,
the advantage must be difficult for competitors to imitate. As Bruce Henderson
points out, ‘Your most dangerous competitors are those that are most like you.
The differences between you and your competitors are the basis of your
advantage.’5

• Meeting customer needs better than rivals

• Porter (1996) competitive strategy is about being different

Henry: Understanding Strategic Management, 3rd edition

 What is strategy?

• Markides (1999) selecting a strategic position an

organization can call its own based on:

– Who should the organization target as customers?

– What products or services should be offered?

– How can the organization do this efficiently?

Henry: Understanding Strategic Management, 3rd edition

 What is strategy?

• Kay (1993) defines an organization’s strategy as

‘…the match between its internal capabilities
and external relationships’
– Internal: what the organization is capable of doing
– External: Its relationship with employees, customers,
shareholders, and suppliers.

• The use of analytical techniques allows the firm

to influence its position in the market

Henry: Understanding Strategic Management, 3rd edition

 The kernel of a strategy

A good strategy is to have an essential logical structure called the kernel. The kernel of a
strategy contains three elements: a diagnosis, a guiding policy, and a coherent set of actions.

1. A Diagnosis
A diagnosis defines or explains the nature of the challenge which faces the organization. The
purpose of a diagnosis is to simplify the complexity of the situation facing the organization. This
is done by identifying which aspects of the situation are critical. An insightful diagnosis can
transform a manager’s view of the situation.
2. A Guiding Policy
This is the overall approach which managers have chosen to deal with the obstacles identified
in the diagnosis. It is a guiding policy because it directs management action in certain
directions, but does not tell managers exactly what they should do. It provides a method in
which managers can deal with a situation, and also rules out numerous other actions.
3. A Set of Coherent Actions
Strategy is about action; in order to be effective, it must be achieving something. Therefore, a
set of coherent actions is necessary to carry out the guiding policy. What is needed is sufficient
clarity on what actions are required to focus the organization’s attention. These actions are the
steps which are coordinated to work together to accomplish the guiding policy

Henry: Understanding Strategic Management, 3rd edition

 Strategic management

• The process of creating a strategy is called strategic

management.
• Strategic management consists of: strategy analysis,
strategy formulation, and strategy implementation
– Strategy formulation usually takes place at the business and
corporation level
– Strategic analysis is important for strategy formulation
– Strategy implementation requires the organization to be
sufficiently flexible

Henry: Understanding Strategic Management, 3rd edition

 Strategic management

• Strategy analysis, formulation, and implementation all

need to be considered if the organization is to meet the
needs of its environment
• In reality these elements are interdependent and should
not be considered in isolation

Henry: Understanding Strategic Management, 3rd edition

 Strategic Management

A strategy allows an organization to configure its resources and capabilities to meet the needs
of the environment to achieve competitive advantage.

1.Strategic Analysis : Strategic analysis refers to the process of conducting research on a

company and its operating environment to formulate a strategy. Defining the internal and
external environments to be analyzed. Using several analytic methods such as Porter's five
forces analysis, SWOT analysis.

2.Strategy formulation : refers to the process of choosing the most appropriate course of action
for the realization of organizational goals and objectives and thereby achieving the
organizational vision.

3.Strategy Implementation refers to the execution of the plans and strategies, so as to

accomplish the long-term goals of the organization. It converts the opted strategy into the
moves and actions of the organization to achieve the objectives.

Henry: Understanding Strategic Management, 3rd edition

 Values, vision, and mission in strategy

• A given strategy must be effectively communicated with

stakeholders inside and outside the organization

• The core values are an organization’s essential and enduring tenets

or beliefs, which will not be compromised for financial expediency
and short-term gains. They do not shift as competitive conditions
change, but remain largely inviolate. It is what members are
expected to endorse and internalize as part of working for such
organizations. The organization’s values are crucial in sign-posting
to individuals what the organization considers important

• An organization’s culture will determine how it responds to

opportunities that exist

Henry: Understanding Strategic Management, 3rd edition

 Values, vision, and mission in strategy

• A vision is often associated with the founder of an

organization

• It represents a desired state the organization aspires to

achieve in the future

• A mission seeks to answer the fundamental question of

why an organization exists

• Campbell et al. (1990) make a distinction between

mission and sense of mission

Henry: Understanding Strategic Management, 3rd edition

 Example of organizational values

Organizational values at Johnson & Johnson:

How does their Credo guide strategy?

Henry: Understanding Strategic Management, 3rd edition

 Changes in the approach to strategy

• Sustained competitive advantage is decided by

the marketplace
– It includes assumptions about markets, customers,
competitors, and its internal capabilities

• The resource-based view sees the determinant

as being from the firm-level resources and
capabilities
– The dynamic capability approach insists that an
organization develops new capabilities to sustain
competitive advantage rather than relying on market
barriers for advantage

Henry: Understanding Strategic Management, 3rd edition

 Business Model

Joan Magretta defines a business model as, a story which explains how an organization works. It
answers questions posed by Drucker, such as:
who is the customer? And,
what does the customer value?
It answers a crucial question for managers who are concerned with how to make money from the
business.
What is the economic logic which explains how we can deliver value to customers at an appropriate
cost?

A good business model remains essential to every organization, whether it’s a start-up or an
established company. Although every viable organization is built on a sound business model, a
business model isn’t a strategy, even though the terms are often used interchangeably. A business
model describes how the activities of a business fit together; its value chain. It includes all the
activities associated with making a product; for instance, design, manufacturing, and purchasing. It
also includes the activities associated with selling a product or service; for instance, transactions,
distribution, and delivery. A business model describes how the organization operates, whereas a
business strategy explains how an organization can compete better than its rivals. Therefore, a
business model should complement a clear competitive strategy.
If a business model is to remain relevant, managers must be open to innovations.31 Organizations
are being encouraged to take an interest in business model innovation

Henry: Understanding Strategic Management, 3rd edition

 Types of Strategy

Corporate Strategy
Corporate strategy is concerned with the broader issue of which industries the organization wants to compete in.
Corporate strategy deals with mergers and acquisitions and the allocation of resources between the organization’s
strategic business units (SBUs). Unilever’s takeover of Dollar Shave Club is part of its corporate strategy of moving into
the market for razor blades, where it had no presence. Corporate strategy is often seen as the preserve of the most senior
management within an organization.

Business Strategy
Business strategy, sometimes called competitive strategy, deals with how an organization is going to compete within a
particular industry or market. It is concerned with how the organization will achieve a competitive advantage over its rivals.
In contrast to corporate strategies, managers of SBUs, are usually given substantial autonomy to formulate business
strategies.

Functional/Operational Strategy
We might note that there is a third category: functional strategy. This deals with decisions according to functional lines
such as research and development (R&D), marketing, and finance. These functions will be involved in the support of the
business strategy. Sometimes this is referred to as operational strategy. However, operational strategy is a misnomer
because it simply means managers taking decisions to implement business strategy. A more appropriate term would be
operational management. Therefore, we will subsume this within business strategy in our discussions.

Henry: Understanding Strategic Management, 3rd edition

 Different perspectives on strategy
formulation
• This Rationalist School is exemplified by Michael
Porter’s generic strategies

• The Learning School emphasizes deliberate and

emergent strategies
– A deliberate strategy is one the organization intends
to pursue

– An emergent strategies involves managerial learning

and experience that coalesce into a realized strategy

Henry: Understanding Strategic Management, 3rd edition

 Three approaches to strategy formulation:
intended, realized, and emergent strategies.

Henry Mintzberg and James Waters suggest three approaches to strategy

formulation: intended, realized, and emergent strategies.
(1)An intended strategy is one that the organization has deliberately chosen to
pursue and will therefore have been worked out in detail.
(2) A realized strategy is the strategy that the organization actually carries out. For a
variety of reasons—for example, a change in consumer tastes—the intended
strategy may no longer be relevant for the market conditions and therefore is not
implemented. Mintzberg and Waters refer to this as an unrealized strategy.
(3) Emergent strategy - as the name suggests occurs by chance or happens within
the organization without any long-term planning. It occurs from the day-to-day
decisions made to run the company at the tactical and routine level of the company.
In such a case, managers will have to use their experience and learning to develop
an emergent strategy which meets the needs of the changing environment.

Henry: Understanding Strategic Management, 3rd edition

 Example of strategy formulation

Honda’s Dominance of
the US Motorcycle
Industry: Deliberate or
Emergent Strategies?

Henry: Understanding Strategic Management, 3rd edition

 A framework of strategic management

Henry: Understanding Strategic Management, 3rd edition