Summary of Chapter 1 What is Strategy - Understanding Strategic Management

1. A summary of Chapter 1 of the book by Anthony E. Henry
MM MBA University of Indonesia
Donny Marthen Sitompul (1306356412)
1 WHAT IS STRATEGY
UNDERSTANDING STRATEGIC MANAGEMENT 2ND ED

2. 1
UNDERSTANDING STRATEGIC MANAGEMENT
INTRODUCTION
1.1 What is Strategy
Strategy was born out of military conflicts and the use of a superior strategy enabled one warring party to defeat another. Von Clausewitz in the nineteenth century stated that the decision to wage war should be both rational – the purpose is to gain and to manage the cost incurred and instrumental - to achieve some specific goal and achieve one end. Sun Tzu, the Chinese philosopher and insightful military strategist, wrote the book The Art of War full of strategic advises.
The role of strategy is to achieve competitive advantage for an organization which allows an organization to meet customer’s needs better than its rivals. To be sustainable, it must be difficult for rivals to copy. As Henderson (1989) points out, ’Your most dangerous competitors are those that most like you. The differences between you and your competitors are the basis of your advantage’.
Porter (1996), in his article entitled ‘What is strategy?’, states that ‘competitive strategy is about being different by deliberately choosing a different set of activities to deliver a unique mix of value’. Markides (1999) argues that the essence of strategy is for an organization to select one strategic position that it can claim as its own. A strategic position should answer company question such as :
 Who should be targeted as customers?
 What products or services should be offered to targeted customers?
 How can the company do this efficiently?
Kay (1993) sees the strategy of an organization as ‘the match between its internal capabilities and its external relationships’. An organization’s external environment comprises the general environment and the competitive environment. In contrast, the internal environment of the organization deals with the organization

3. 2
itself includes its values, goals, resources and capabilities and internal structure.
1.2 Strategic Management
Strategic management is the process of bringing about the strategy which allows an organization to match its resources and capabilities to the needs of the external environment in order to achieve competitive advantage. It is about analyzing, formulating and implementing that strategy.
Key success factors are those elements in the industry that keep customers loyal and allow the organization to compete successfully.
1.2.1 STRATEGY ANALYSIS
Strategy analysis or situation analysis involves an analysis of the general environment and the competitive environment. Strategy analysis also deals with the organization’s internal environment.
1.2.2 STRATEGY FORMULATION
Mintzberg (1994) reminds us that strategy formulation also occurs as a creative and, at times, subconscious act which synthesizes experiences to form a novel strategy. Ohmae (1984) accepts that strategic thinking starts with analysis but stresses creative insight in the formulating of great strategies. Such analysis does not form part of any conscious analysis.
Markides (1999) argues that ‘effective strategic design is a process of continuously asking questions…correctly formulating the questions is often more important than finding a solution’. Ohmae (1984) states that a vital part of strategic thinking is to formulate questions in a way that will help find a solution.
Strategy formulation primarily takes place at two different levels within the organization: the business level and the corporate level. The business-level strategy deals with how an organization competes in its chosen markets, whereas corporate strategy deals with the fundamental question of what business (or businesses) we want to be in.
1.2.3 STRATEGY IMPLEMENTATION
Strategies need to be communicated, understood, and properly coordinated with stakeholder inside and outside the organization. In an age of collaboration, this may involve discussions with suppliers and partners. At a fundamental level we can ask: What is the purpose of any organization? Why does it exist?
1.3 Values, Visions, and Mission Statements
A vision is often associated with the founder of an organization and represents a desired state that the organization aspires to achieve in the future. A vision may or may not find its expression in a vision statement (Lipton : 1996).

4. 3
A mission seeks to answer the question why an organization exists. Drucker (1995) argues that a mission statement is the same as asking the question: What business are we in?
Campbel et al. (1990) make a distinction between an organization’s mission and its sense of mission. They see a mission as an intellectual concept that can be used to guide the policies of an organization. However, a sense of mission is an emotional commitment that employees feel towards the organization. It occurs when employees feel that there is a match between the values of an organization and those of the individual.
Collins and Porras (1994) describe a core ideology which is made up of core values and purpose. The core values are an organization’s essential and enduring tenets which will not be compromised for financial expediency and short term gains.
1.4 Types of Strategy
There are three basic forms of strategy that interest organizations. These are corporate strategy, business strategy and functional strategy. Corporate strategy deals with mergers and acquisitions, and allocates resources between the organization’s strategic business units (SBUs). Corporate strategy is often seen as the preserve of the most senior management within an organization. Business strategy sometimes called competitive strategy is concerned with how the organization will achieve a competitive advantage over its rivals. Managers of SBUs who are usually given substantial autonomy, formulate business strategies. Functional strategy deals with decisions according to functional lines such as R&D, marketing and finance.
1.5 Changes in the Approach to Strategic Management
During the 1950s and 1960s firms could rely on stable and expanding market conditions with a customer emphasis on price. In the 1960s and 1970s the corporate landscape was beating to the drum of diversification, in particular how to increase market share by capturing new markets. In 1980s, the work of Porter (1980, 1985) on industry analysis shifted the emphasis to firms analyzing the competitive forces inherent within their industry as a means of gaining competitive advantage. In the 1980s corporations had also begun to focus on the core elements of their businesses. This continued throughout the 1990s as new management techniques taught corporate leaders about downsizing, outsourcing, delayering, total quality management, economic value analysis, benchmarking and re-engineering. Organizations were outsourcing all but the essential elements or the core competencies of the organization.
D’Aveni (1994) coined the term hypercompetition to describe the new competitive situation where firms must continually innovate, developing new products or services for the customer. Sustainable competitive advantage now requires firms to constantly develop new products to provide customers with increased functionality and performance.
1.6 Different Perspectives on Strategy Formulation
We can identify two broad perspectives of strategy management which at first reading may appear to be polar opposites: the design school and the learning school.

5. 4
1.6.1 THE DESIGN SCHOOL
The design school is associated with the work of Andrews (1972) and Ansoff (1965). According to Andrews, an organization needs to match its strengths and weaknesses with the needs of its competitive environment. The competitive environment comprises both threats and opportunities. This provides the familiar SWOT analysis of strength, weaknesses, opportunities and threats. An external analysis is used to identify the opportunities and threats facing the firm, while an internal analysis of the organization identifies its strength and weaknesses. In the 1960s organizations had planning departments which created strategies for managers to implement. The role of top management was to choose the most appropriate strategy.
Ansoff’s product matrix was an attempt to help organizations understand the relationship between their organization to assess more clearly its strategy, and therefore reduce its risks.
1.6.2 THE LEARNING SCHOOL
Mintzberg (1990) argues that rational approach to strategy fails to take account of how strategy making intended, realized, and emergent strategies. An intended strategy is one that the organization has deliberately chosen to pursue and will therefore have been worked out in detail. A realized strategy is the strategy that the organization actually carries out. An emergent strategy is where managers use their experience and learning to develop a strategy that meets the needs of the external environment.
Mintzberg (1994) points out that ‘strategy is an immensely complex process, which involves the most sophisticated, subtle and, at times subconscious elements of human thinking…strategies can develop inadvertently, without the conscious intention of senior management, often through a process of learning’. However, Mintzberg does allow ‘that all viable strategies have emergent and deliberate qualities, since all must combine some degree of flexible learning with some degree of cerebral control’.
1.7 A Strategic Management Framework
Values are important in the strategy-making process. Values determine the goals that set by organization, the resources and capabilities it requires, and the structure and processes necessary to achieve the goals.
An organization’s goals will reflect its internal strengths and weaknesses and the opportunities and threats within its external environment.
Deliberate Strategy
Unrealized Strategy
Emergent Strategy

6. 5
Internal Environment
External Environment
Values
Goals
Resources & Capabilities
Structures & Processes
General Environment
Competitive Environment