Week 1 what is strategy

Learning outcomes• To introduce the concept and definitions of strategy • Understand the characteristics of strategic decisions and what is meant by strategy and strategic management

3BM020 Organisational Strategy and

Decision Making

Lecture 1 Historical development:

What is strategy?

•JD Sports profits rise 45% as new stores open across Europe

•JD Sports has revealed a 45% jump in annual profits after a surge in

demand for women’s sports clothing.

•Retailer cashes in on ‘athleisure’ trend as rise in demand for women’s

sportswear sees like-for-like sales rise by 11.6%

https://www.theguardian.com/business/2014/sep/17/jd-sports-overseas-expansion-profits-rise

https://www.theguardian.com/business/2016/apr/ 14/jd-sports-profits-rise-new-store-openings- europe

In the news

Question: Why would they do this and what is

driving this strategy?

Learning outcomes

• To introduce the concept and definitions of

strategy

• Understand the characteristics of strategic

decisions and what is meant by strategy and

strategic management, distinguishing them from operational strategy

• Understand how strategic priorities vary by level: corporate, business and operational

• Understand the basic vocabulary of strategy

Focus Questions

• What kind of ideas have shaped the

development of strategic management?

• Which writers and theorists have been

involved in the process of development?

• How useful are these ideas in

understanding the formulation of strategy?

• How do these ideas relate to practical

implementation?

The three founding fathers

• Kenneth R Andrews

• Alfred D Chandler Jr

• H Igor Ansoff

• The first people to formally define the

concepts, scope, content and

methodologies associated with strategic management

Kenneth R Andrews

• Invented the case study methodology and with it the format of nearly all modern business management text books

• Main work – The Concept of Corporate Strategy (1958)

• Purpose – to understand and to manage

complex organisations striving to make

their way in an increasingly complicated

world

• Corporate strategy was thus concerned

the organisation as a whole (not just the

management of its component parts) and

the way that it related to its environment

Andrews’ Three Roles of CEO

• The architect of organisational purpose

– Detached from day to day stuff, she/he takes the longer (strategic) view, and prepares for it

Andrews’ comparison of Business with

Corporate Strategy

• Corporate strategy is thus

“The pattern of decisions in a company that

determines and reveals its objectives, purposes,

or goals , produces the principal policies and

plans for achieving these goals and defines the

range of business the company is to pursue , the

kind of economic and human organisation it is or intends to be, and the nature of the economic

and non-economic contribution it intends to

make to its shareholders, employees, customers and communities”

Alfred D Chandler Jr

• Towards a practitioner based theory of general management

– Empiricism rather than deduction

• “The literature of organization theory is by itself…of very little use in managing a live organization”

• He did not advocate an ad-hoc approach

to management but simply underlined the complexity of the world surrounding the business manager

• Started with a question: how had business administration developed to cope with the increased complexity of the environment?

• Major work: Strategy and Structure (1962)

• Business administrators

must be concerned with both

the smooth and efficient operation

of the company ands its “long-run

health”

• Where are strategic issues located?

Alfred D Chandler Jr

necessary for carrying out these goals

• Smooth and efficient day to day decisions

he describes as “tactical”

Igor Ansoff

• Deeply influential

• Introduced the idea of turbulence as a

characteristic of the operating environment

• Conceived various approaches to the

management of change

• Main work: Corporate Strategy

(1965) Very prolific and has

changed many of his original

ideas over the years

• Ansoff recognises that the business

environment has become increasingly

unpredictable

• Ansoff draws on Drucker’s notion of ‘what business are we in’ – clearly there has to

be some sense of direction…

• …but he also acknowledges that the

concept of strategy is vague…

Ansoff on Strategy

• Strategy is one of several sets of

decision-making rules for guidance of organisational

behaviour, e.g.:

– Yardsticks to measure the firm’s performance

– Rules for developing the firm’s relationship with its environment (product-market or business strategy) – Rules for establishing internal relations

(administrative strategy)

– Operating policies

Ansoff on Strategy

• Management is pragmatic and

result-orientated so of what use is such an

elusive concept as strategy?

• Key question: do firms that adhere to the notion of systematically formulating

strategy fare better than those who simply manage on an ad hoc basis?

– Ansoff seems to think so

Ansoff on Strategy

• Two related types of strategy that “in modern

practice … are used to characterise the thrust of

a firm’s strategic development”:

• Portfolio Strategy

– What business is the company in and what should it

be in

• Competitive Strategy

– “specifies the distinctive approach which the firm

intends to use in order to succeed in each of the

business areas”

Michael Porter

• A name that appears in every text book

• Changed the nature of the debate about the firm in its proper setting:

• Focus on the industry environment of a firm

• The potential of new entrants

• The role of suppliers

• The power of customers

• More on him throughout the semester

Michael E Porter

• A scientist by training who seems to be

looking for scientific truths about

management

• Major work: Competitive Strategy (1980)

• Explode onto the scene and

massively influential

• You must know about Porter as a student of strategy

Porter on the Business Environment

• Porter is concerned essentially with the

industrial environment of the firm

• He is less concerned with the

macro-environment or the wider world

• Within this environment he is concerned with “competitive rivalry” between firms

• Competition is the driver of strategic

change

• Strategy is everywhere and applies to a number

of ‘institutions’

– Football teams have strategies

– Political parties have strategies

– People have strategies

– Organisations have strategies…or are supposed to

Strategy is everywhere

• Strategy is driven by technology

• Technology can wipe out or reduce competition

• Web technology drives the biggest challenge to other

forms of business in recent times

e.g all firms now need and IT strategy – something which may not sit well with older members of the Board

• Adopting strategies in changing business environments

becomes key to success for organisations – it is the

management’s response to turbulence

Changing environments

Turbulent environments – thoughts?

Apple: revolutionaries

Apple: 1996 before Steve Jobs

• Company operating at a loss

• Microsoft Windows 95 successful

• Windows had a graphical user interface and mouse

• Only had 3-4% share of the PC industry

• Selling a dozen desktop computers

• 2 months from bankruptcy

Reappointment of Steve Jobs

• Reduced product line – focus on iMac (1998) and became best-selling PC in US

• Mac OS X (March 2001) – virtually crash-proof Speed and ease of use helped users move from Windows

• Release of iPod (October 2001): “whole music library in

your pocket”

• iTunes (2003) – digital music sales changed the field

– Strategic lock-in? Any ideas?

• iPhone (2007)

• iPads (2010)

• iWatch (2014) – the next revolution?

• Competition Without competition there would be no need for strategy

• Monopoly providers are able to sell or distribute any quality of goods or services; competition changes this and informs an organisation’s strategy

• Michael Porter argued that the essence of competitive

strategy is getting closer to a monopolistic competition from the firm’s perspective

• When a range of firms offer similar products and services then strategy is required as competition will arise – strategy

positions specific products with specific differences

Key term - Competitive Advantage

Why do we need strategy?

Strategic decisions

• Strategic capabilities: “the capabilities of

an organisation that contribute to its term survival or competitive advantage”

long-• Resources: “the assets that organisations have or can call upon” (what we have)

• Competences: “the ways those assets are used or deployed effectively” (what we do well)

Strategic capabilities:

Resources and competences

• Strategy is the long term direction of an organisation

• Driven by competition with others

organisations

• Technology has a major influence upon strategic changes

• Strategy develops as management’s

response to environmental turbulence

Re-cap

level strategy

Corporate-• Concerned with the overall purpose and scope of an organisation and how to add value to business units

• Includes geographical scope, diversity of products and how resources are allocated between different elements of an organisation

Corporate-Level Strategy

Corporate-Level Strategy: example –

News Corp buys MySpace

2005: Bought to drive traffic to

Fox TV sites due to the dominance of online advertising (changing environment)

2011: MySpace sold

by News Corp

• How the individual businesses should compete in their particularly markets (business strategy is often called ‘competitive strategy’)

• These may be e.g individual businesses and start-up businesses within a larger corporation (e.g Fox within News Corp)

• Business level typically concerned with issues such as innovation, scale and response to competitors’ moves

Business-Level Strategy

Business-Level Strategy: example

The public sector

Decisions about how units (e.g individual hospitals and schools) should provide best-value services

• Operational Level Strategy is concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people.

Operational Level Strategy

Operational Level Strategy: YSJU

increasing student numbers

• Staff expertise

• Use of resources (Temple Hall redeveloped)

Questions for strategy

implementation

Three main areas of strategy

1 organisation’s internal resources;

2 external environment within which

the organisation operates;

3 organisation’s ability to add value.

Re-cap (2)

• Strategy is central to the development of

sustainable competitive advantage in the

organisation

• It is crucial to value added

• Corporate strategy covers the range and depth

of the organisation’s activities

• It directs the changing and evolving relationships

of the organisation with its environment

 Andrews, K (1971) The Concept of Corporate Strategy, p28 Dow Jones

– Irwin

Edition, Prentice Hall

edition Prentice Hall

press, Oxford, p4

management really? Inductive derivation of the field’, Strategic

Management Journal, Vol 28, pp935-955

References