Strategic Management Lynch

Introduction to Strategic Management

• This chapter provides an overview of strategic management theories and practice.
• It is possible to skip this chapter and read it later, but you will miss the opportunity to gain an overview of the general theoretical structure of the topic.
• The prescriptive and emergent approaches of Chapter 1 deserve further exploration.
• Even within each route, prescriptive or emergent, there is substantial disagreement among strategists about how strategic management can and should be developed.
• Both routes contain many different interpretations and theories.
• It is important that some of these differences are explored to fully understand the dynamics.
• Strategic management should be considered from an ethical perspective.
• Every organisation’s strategy must be seen in the context of its responsibilities to its owners, its managers and employees and its role in society.

Learning Outcomes

• Describe and evaluate prescriptive strategic practice.
• Describe and evaluate emergent strategic practice.
• Identify the main theories associated with prescriptive strategic management.
• Identify the main theories associated with emergent strategic management.
• Explain the shift in stance on stakeholder and ethical thinking in many organisations.

Creative Strategy at Snapchat

• Snapchat began as a student project between three students at Stanford University.
• It was originally launched from the living room of one of the founders.
• From its public launch in 2011, Snapchat challenged the basic World Wide Web concept of that time.
• Web content, emails, stories and pictures were always kept and stored on the web or on personal computers.
• Snapchat took the opposite approach: messages and pictures would only be stored for a brief period of time.
• They could only be viewed for a length of time specified by the originator – typically 1 to 10 seconds.
• After this, they would be automatically wiped from the web.
• This meant that Snapchat users had a completely different approach to web usage: shared content was more like a ‘conversation’ than a library of data that would be kept for ever.
• Snapchat offered a way of exchanging pictures and, later, short videos that were just moments in time.

Snapchat Development and Monetisation

• Snapchat developed new products and services.
• ‘Geofilters’ were added in 2014 that would enable posters to include special geographic overlays if the user was in a specified geographic area.
• The ‘Lens’ was added in 2015 that introduced real-time effects into snaps using face-detection technology.
• ‘Memories’ was introduced in 2016 to allow users to save their screen shots into a private storage space, to be used alongside other photos and videos that had previously been stored.
• By 2016, Snapchat had over 150 million daily users worldwide and 10 billion daily views.
• Since its launch, Snapchat was essentially a free service to its users.
• Like all business, Snapchat could not continue without making a profit at some time: in the jargon, it needed to monetise its offering.
• It began its first paid advertising in 2014: a short movie trailer that advertised a horror film.
• Filters for the Lens app and the Geofilters app allow advertisers to customise these apps for their companies.
• Snapchat made commercial deals with several organisations to present video material for selected sports, including film from the Olympics 2016.
• At the time of writing this case, Snapchat was still developing new apps.
• Snapchat was far from a finished business model – as shown by the business losses for 2015 and 2016.
• Snapchat was facing new competition from other companies like Facebook that were beginning to offer similar technology: the original Snapchat concept was being copied by rivals.
• Facebook claimed to have 1.2 billion users who checked their Facebook accounts every day.
• The new competition had a much larger user base.
• Snapchat had a very young user profile – mostly those in their teens and early twenties – compared to Facebook.
• Facebook made a profit of $10$ billion in 2016 on a turnover of nearly $27$ billion compared to the losses at Snapchat.
• Facebook was making renewed attempts with its Instagram service to mimic Snapchat and compete with the Snapchat service.
• Some commentators argued that the Snapchat losses showed that the company simply did not have the competitive resources of its rivals and its creative offering was now weakening.
• Others suggested that the size and growth of Facebook showed that there was sufficient room in the market for another company targeted at a different market segment: the Snapchat strategy was still likely to be successful.
• When the web messaging app Snapchat was launched in 2011, it was web revolutionary strategy at its best.
• Snapchat public share launch in 2017 valued the company between $20$ and $25$ billion.
• The company had never made a profit, losing $373$ million in 2015 and $404$ million in 2016.

The Importance of Strategy Context

• Context means the circumstances surrounding and influencing the way that strategy operates and develops.
• The strategic context of Snapchat is the fast-changing nature of web communication, with new products and services continuing to emerge.
• In the early years of strategic management theory, it was assumed that strategic context was largely predictable.
• The classic and widely used strategy texts from Michael Porter make the assumption that markets are, at least in part, largely predictable.
• The market size and growth for butter products, bicycles and vacuum cleaners can all be predicted with some certainty barring a major catastrophe.
• For such businesses, market growth or decline is largely linear, continuous and thus predictable: this has led to the classic model of prescriptive strategy because such a simplifying assumption enables new strategy to be developed and implemented.
• There are a number of circumstances, particularly involving a more turbulent or uncertain context, where such an assumption is incorrect: Snapchat is one example.
• In fast-changing markets, the whole concept of predicting how the market will change will have limited value.
• The way Snapchat will develop over the next few years is difficult to predict because it depends on unknown factors like developments in technology and competitor activity from companies like Facebook.
• Emergent strategy approaches tackle such issues better.
• This does not mean that the prescriptive model is ‘wrong’, but it may over-simplify the strategic context in some important circumstances and therefore lead to inappropriate strategic decision making.

Strategy Context and its Relationship with Strategy Process and Content

• Strategy context has two main dimensions:
  • The external context: This may be particularly uncertain – for example, internet banking is revolutionising the retail banking industry. This makes the prescriptive route, which relies on predicting the environment, largely meaningless.
  • The internal context: The organisation’s resources and decision making are undoubtedly more complex than the simple options and choice of the classic prescriptive strategy model – for example, organisational politics, formal and informal networks, styles of leadership and many other issues all undermine the assumptions of the classic approach.
• The context in which the strategy is developed may influence the process of strategy development.
• For example, an uncertain context may make a simple decision-making process irrelevant.
• As a result, the content of the strategy may also change and differ from that suggested by classic prescriptive strategy.
• Equally, it will be difficult to decide the content of a strategy if the context within which it is being developed remains uncertain.
• For example, at Snapchat the fast-changing context makes the strategic process rapid and makes it problematic to be sure that new content, like increased advertising content, will prove successful.
• It is this combination of context, process and content that will guide us in identifying the different approaches to strategic management.

How Strategic Context has Prompted Different Strategy Theories

• Strategic management is not rocket science – combining context, process and content involves judgement that goes beyond the formulaic certainties of mathematical theory or mechanical engineering.

• There is no well-tried and generally agreed scientific formula for finding the strategic route forward.

• As a consequence, there are many alternative approaches to strategy development.

• Some approaches still have a strong prescriptive element, while others are more emergent in their exploration of strategic issues.

• The difficulty is how to explore the many alternative ways forward that have been suggested by strategy writers.

• This chapter explores some of these different theories, many of which are the result of differing views amongst strategists with regard to strategic context.

• None of these theories is ‘wrong’: they all offer differing and useful perspectives on strategy development.

• The problem for business practitioners is to pick the most effective theory for the strategic context of the specific time and purpose of the organisation.

• In developing strategy, it is important to distinguish three distinct elements: the content of the strategy; the process by which it has been derived; and the context in which it has been developed.

• In early theories of strategy, context was assumed to be largely linear and predictable. But this is not always the case, particularly when the context is turbulent and uncertain. Alternative approaches to strategy development may therefore be required.

• The context, process and content of a strategy are interconnected and it is this combination that is important in strategy development.

• It is mainly the differing views on strategic context that have prompted the development of different theories of strategic management. None of these theories is ‘wrong’. The problem for business practitioners is to pick the most effective theory for the strategic context of the specific time and organisation.

• Strategic management context can be understood more easily against the background of the historical developments that prompted and shaped them.

Prescriptive Strategic Management in Theory and Practice

• A prescriptive strategy is one where the objective has been defined in advance and the main elements have been developed before the strategy commences.

• There are many variations on this basic approach.

• Prescriptive strategy starts with an analysis of the competitive environment and resources of the organisation.

• Snapchat will begin with a basic analysis of the size of the market and a study of its prime young customer base.

• This is then followed by a search for an agreed purpose, such as the maximisation of the return on the capital involved in a business (Ansoff, Porter).

• It should be noted that the objective is not necessarily profit maximisation: for example, in a publicly owned enterprise or social co-operative, the objective could have social service standards as its major aim.

• One test for prescriptive strategy is to see whether a clearly defined objective has been identified in advance of the commencement of the strategy. In the case of Snapchat, the purpose was probably more experimental and evolving as the business grew.

• Against the background of the competitive environment and an agreed purpose, various options are identified to enable the business to achieve the purpose. One option is then selected which is best able to meet the objective. In Case 2.1, Snapchat had some options with regard to choice of customer targets and possible new products and services.

• The chosen option is implemented by the organisation’s managers. At Snapchat, the strategic decisions were to follow up the initial university trial with a broader service still aimed at young people. Importantly in this case, Snapchat expanded its user base quite fast but was still unprofitable at the time of writing Case 2.1.

• The advantages of the prescriptive process are that it assists in providing a complete overview of the organisation, thus allowing a comparison with the objectives of the organisation. In turn, this allows an assessment of the resources of the organisation, especially those that deliver competitive advantage, and the allocation of resources that are scarce. Finally, the prescriptive process lends itself to assessing the implementation and monitoring of an agreed plan.

• Prescriptive strategy begins with an analysis of the competitive environment and the competitive resources of the organisation. In this context, the purpose or objective of the strategy is then identified.

• The objective may be adjusted if the environment or other circumstances change.

• To test for prescriptive strategy, it is useful to examine whether a clearly defined, main objective has been identified.

• The advantages of the prescriptive process include the overview it provides; the comparison with objectives; the summary of the demands made on resources; the picture of the choices to be made; and the ability to monitor what has been agreed.

Foundations of Prescriptive Strategy

• In studies of prescriptive strategy, close parallels have been drawn with what happens in military strategy.
• Prescriptive business strategy is sometimes seen as being similar to sending the troops (employees) into battle (against competitors) with a clear plan (the prescriptive strategic plan) that has been drawn up by the generals (directors) and then has been implemented (by launching innovatory products, etc.). The Facebook/Instagram strategic battle against Snapchat is an example of such a strategy.
• Prescriptive strategic analysis has also borrowed from economic theory.
• Adam Smith took the view that human beings were basically capable of rational decisions that would be motivated most strongly by maximising their profits in any situation.
• Individuals were capable of rational choice between options, especially where this involved taking a long-term view.
• Modern strategy theorists, such as Professor Michael Porter of Harvard University Business School, have translated profit maximisation and competitive warfare concepts into strategy techniques and structure that have contributed to prescriptive strategic practice.
• Porter suggested that what really matters is sustainable competitive advantage vis-à-vis competitors in the market place: only by this means can a company have a successful strategy.
• The Boston Consulting Group used market data to develop a simple, strategic matrix that presented strategic options for analysis.
• One of the early writers on strategic management was Professor Igor Ansoff.
• Strategists such as Andrews and Chakravarthy and Lorange follow in the long line of those writing about strategic planning systems who employ many of these basic concepts.
• They are still widely used in many organisations around the world.

Critical Comment on Prescriptive Strategy

• Despite the advantages claimed for a prescriptive strategy system operating at the centre of organisations, there have been numerous critics of the whole approach.
• Professor Henry Mintzberg has researched strategy decision making and suggested that a prescriptive strategy approach is based on a number of dangerous assumptions as to how organisations operate in practice.
• There is significant research to show that these prescriptive assumptions are not always correct.
• For example, the market place can change, or employees may not like an agreed strategy – perhaps because it will mean that they lose their jobs – and will find ways to frustrate it.
• Given this evidence, theories of emergent strategy have developed, as an alternative view of the strategy process.
• Although highly critical of the formal prescriptive planning process, Mintzberg has modified his views in recent years and accepted that some strategic planning may be beneficial to the organisation.
• The period of the 1970s was the era when prescriptive strategic planning was particularly strong.
• Further strategic competitive concepts, such as generic strategies, would be proposed in the 1980s, but the basic process of analysis, strategic choice, selection and implementation formed the best practice of many companies.
• Snapchat is one possible example of some elements of prescriptive strategy, but its early experimental approach to the web makes Snapchat probably more emergent than prescriptive.
• A better example of prescriptive strategy is that associated with the development of two major airline companies, Singapore Airlines and Emirates.

Some Major Difficulties with The Prescriptive Strategic Process

• Mintzberg has identified six major assumptions of the prescriptive process that may be wholly or partially false:

  • The future can be predicted accurately enough to make rational discussion and choice realistic. As soon as a competitor or a government does something unexpected, however, the whole process may be invalidated.
  • It is possible and better to forgo the short-term benefit in order to obtain long-term good. This may be incorrect: it may not be possible to determine the long-term good and, even if it is, those involved may not be willing to make the sacrifice, such as jobs or investment.
  • The strategies proposed are, in practice, logical and capable of being managed in the way proposed. Given the political realities of many companies, there may be many difficulties in practice.
  • The chief executive has the knowledge and power to choose between options. He/she does not need to persuade anyone, nor compromise on his/her decisions. This may be extraordinarily naïve in many organisations where the culture and leadership seek discussion as a matter of normal practice.
  • After careful analysis, strategy decisions can be clearly specified, summarised and presented; they do not require further development, nor do they need to be altered because circumstances outside the company have changed. This point may have some validity but is not always valid.
  • Implementation is a separate and distinctive phase that only comes after a strategy has been agreed: for example, a strategy to close a factory merely requires a management decision and then it just happens. This is extraordinarily simplistic in many complex strategic decisions.

• A prescriptive strategy is a strategy whose objective has been defined in advance and whose main elements have been developed before the strategy commences.

• The objective may be adjusted if circumstances change significantly.

• After defining the objective, the process then includes analysis of the environment, the development of strategic options and the choice between them. The chosen strategy is then implemented.

• Mintzberg identified six assumptions made by the prescriptive process that may prove suspect in practice and invalidate the process.

Emergent Strategic Management in Theory and Practice

• Emergent strategic management is a strategy whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds. For example, Snapchat can hardly have begun in 2011 with the fixed objective of a public share offering that would value the company at $20 – 25$ billion in 2017.

• There are many variations on this basic approach.

• Various commentators have rejected the dispassionate, long-term prescriptive approach, arguing that strategy emerges, adapting to human needs, benefiting from new and unknown innovations and continuing to develop over time.

• There can be only limited meaningful prescriptive strategies and limited value from long-term planning.

• Research into how companies and managers develop strategic management in practice has shown that the assumption that strategies are always logical and rational does not take into account the reality of managerial decision making.

  • Managers can handle only a limited number of options at any one time – called ‘bounded rationality’ in the literature.
  • Managers are biased in their interpretation of data. All data is interpreted through our perceptions of reality.
  • Managers are likely to seek a satisfactory solution rather than maximise the objectives of the organisation. In other words, the profit-maximising assumption of economic theory may over-simplify the real world.
  • Organisations consist of coalitions of people who form power blocs. Decisions and debate rely on negotiations and compromise between these groups, termed ‘political bargaining’. Researchers found that the notion of strategy being decided by a separate, central main board does not accord with reality.
  • To take decisions, managers rely on a company’s culture, politics and routines, rather than on a rational process of analysis and choice. (Who you know and how you present your strategic decision is just as important as the content of the strategy.)

• The people, politics and culture of organisations all need to be taken into account.

• Strategists have emphasised the learning approach to strategy: encouraging managers to undertake a process of trial and error to devise the optimal strategy.

• Strategic management can best be considered as a process whereby the organisation’s strategy is derived as a result of trial, repeated experimentation and small steps forward: in this sense, it is emergent rather than planned.

• The process then proceeds as market conditions change, the economy develops, teams of people in the company change, innovations occur, etc. Clearly, such a process is hard to define in advance and therefore difficult to analyse and predict in a clear and structured way.

• If the emergent view of the strategy process is correct, then the implications for strategic management are profound:

  • Strategies emerge from a confused background and often in a muddled and disorganised way: the resulting strategies themselves may therefore be unclear and not fully resolved.
  • The prescriptive strategic process is unlikely to reflect reality: options identified will not be comprehensive and the selection process will be flawed.
  • Considering ‘implementation’ after the rest of the strategy process does not reflect what usually happens.
  • Managers are unlikely to seek the optimal solution: it may not be capable of identification and, in addition, may not be in their personal interests.
  • Working within an organisation’s routines and culture will allow the optimal culture to emerge rather than be forced by an artificial planning process.

• The advantages of the emergent strategy process are that it accords with actual practice in many organisations, especially with regard to people issues like motivation. It takes account of the leadership, culture and politics of an organisation. In addition, it allows strategies to experiment, innovate and develop as strategic circumstances change, delivering flexibility during the process.

Critical Comment on Emergent Strategy

• Those who favour prescriptive strategic approaches have a number of basic concerns about emergent strategy.
• In practice, many organisations treat the above comments as limitations on the prescriptive approach, rather than issues that cannot be overcome.

Concerns about the emergent strategic process

• It is entirely unrealistic to expect board members at corporate level simply to sit back and let operating companies potter along as they wish. The HQ consists of experienced managers who have a unified vision of where they wish the group to progress. It may take several steps to arrive at this vision, but the group should make visible progress rather than just muddling along.

• Resources of the group need to be allocated between the demands of competing operating companies; this can only be undertaken at the centre. It therefore demands some central strategic overview.

• It is entirely correct that there are political groups and individuals that need to be persuaded that a strategy is optimal, but to elevate this process to the level of strategic management is to abdicate responsibility for the final decisions that need to be taken.

• In some industries where long timeframes are involved for decision making, decisions have to be taken and adhered to or the organisation would become completely muddled: for example, building a new transport infrastructure or telecommunications network may take years to implement. Experimentation may be appropriate in the early years but, beyond this, strategy has to be fixed for lengthy projects.

• Although the process of strategy selection and choice has to be tempered by what managers are prepared to accept, this does not make it wrong; rational decision making based on evidence has a greater likelihood of success than hunch and personal whim. Thus the debate should take place but be conditioned by evidence and logic.

• Management control will be simpler and clearer where the basis of the actions to be undertaken has been planned in advance.

• Emergent strategic management is a strategy whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds.

• The process is one of experimentation to find the most productive route forward.

• Emergent strategy does not have a single, final objective; strategy develops over time.

• In fast-developing markets, the time period may be short; in slow-developing markets, it is likely to be longer.

• To test for emergent strategy, it is essential to examine how the strategy has developed in practice over a defined time period.

• The advantages of the process include its consistency with actual practice in organisations; it takes account of people issues such as motivation; it allows experimentation about the strategy to take place; it provides an opportunity to include the culture and politics of the organisation; it delivers flexibility to respond to market changes.

• Six problems have been identified with the emergent strategic process that make it difficult to operate in practice.

Prescriptive strategies to build world airlines at Singapore Airlines and Emirates Group

• When the first Prime Minister of Singapore, the late Mr Lee Kuan Yew led his country to break away from the Malaysian Federation in 1965, he realised that a relatively small country of 6 million people needed a strong and distinctive strategy if it was to survive and grow.
• Two airlines, Malaysian Airlines™ System and Singapore Airlines were therefore founded.
• From their foundation to the present, both governments held controlling shares in their respective airlines.
• The governments have therefore been at the centre of the development strategy of both airlines.
• Both companies have developed strong home base operations.
• Singapore Airlines operates from Changhi Airport, Singapore, and Emirates Airlines operates from Dubai International Airport in Dubai, United Arab Emirates.
• Both are widely regarded as being amongst the most modern and smooth-running aircraft hub operations in the world.
• Both companies have a strong service reputation with customers based on their use of modern aircraft, attractive in-flight food and extensive provision of in-flight entertainment.

The prescriptive strategies followed by Emirates Group and Singapore Airlines

• From the beginning, the airlines decided that they would build a reputation based on superior service to their rivals. Thus, they introduced free drinks, hot towels and headsets from the outset – such amenities are relatively cheap and quick to introduce. In more recent years, they were among the first airlines to offer in-flight entertainment screens at each individual seat – even in economy class.
• Substantial investment in staff training, employee welfare and related activities. The airlines took the view that staff were crucial both to in-flight service delivery and also to aircraft safety through expertise in ground and related operations. Equally, as aircraft design changed and in-flight service operations became more complex, the airlines recognised the need to update continuously their knowledge and expertise in these areas.
• The investment in a modern fleet of aircraft with a policy of always seeking out the latest in terms of technology and aircraft design. For example, both airlines were amongst the first airlines to operate the new Jumbo Passenger Jet – the A380-800 – which has added a new dimension to long-distance air transport.
• Development of modern airports at their main bases in Singapore and Dubai coupled with the related strategy of ensuring that the airports became an efficient handling facility for rival airlines. This would encourage other airlines to base their services at Changhi and Dubai International, respectively, when seeking stop-over locations on long-haul flights between the continents of the world.
• Co-operation with other airlines through code-sharing and ticket marketing arrangements to make it easier for customers to travel around the world and to lock them into certain airlines rather than rivals.
• The prescriptive strategy assumption that growth in world travel would continue was cast into doubt by a number of major events that reduced airline travel:
  • the disastrous attack in the USA on 11 September 2001;
  • the highly infectious SARS virus in 2003;
  • the world financial banking collapse in 2008;
  • European flight disruption following the Icelandic volcanic eruptions in 2010 and 2011;
  • fuel price rises in $2009 – 2010$ and again in 2014: fuel accounts for 29 per cent of the total costs of Emirates Airlines;
  • political unrest in several Middle Eastern countries following the change of government in Egypt in early 2011.
• Conversely, declining oil prices in $2015 – 2016$ have reduced airline costs and had a positive impact on profitability.

Some Prescriptive Theories of Strategic Management

• The distinction between prescriptive and emergent strategies explored in the last two sections over-simplifies the reality of strategy development – there are many theories.
• It should be noted, however, that there is some overlap between the two areas.
• In broad terms, it is useful to identify four main areas of prescriptive strategy theory:
  • industry- and environment-based theories of strategy;
  • resource-based theories of strategy;
  • game-based theories of strategy;
  • co-operation- and network-based theories of strategy.

Industry- and Environment-Based Theories of Strategy

• For some companies, profitability is the clear goal, and the content therefore addresses this objective; over the long term, this is likely to override all other objectives.
• Industry- and environment-based theories of strategy argue that profits are delivered by selecting the most attractive industry and then competing better than other companies in that industry.
• Such concepts derive from the assertion that organisations are rational, logical and driven by the need for profitability. They can be related back to three areas:
  • the eighteenth-century Scottish economist, Adam Smith, and his view that man was rational, logical and motivated by profit;
  • the concepts of military warfare quoted earlier in this chapter that show how the competitive war can be won;
  • the industrial organisational (I/O) model of above-average returns to a company deriving from the concept that the most important determinant of company profits is the external environment.
• In terms of the development of strategy theory, much of this material only came together in the 1960s.
• Igor Ansoff, Alfred Chandler and Alfred Sloan all had an early influence in this area.
• More recently, writers such as Wheelen and Hunger have laid out the model for rational, analytical and structured development of strategy.
• During the 1980s, the work of Michael Porter added significantly to this material; he was a dominant influence during this period.
• Much of his work was based on the study of large companies and the application of industrial economic concepts to strategy, as has been pointed out by Rumelt, Schendel and Teece.
• Porter’s approach relied essentially on the view that the industry in which a firm chooses to compete and the way that it competes in that industry are the prime determinants of its long-run profitability.
• Strategy involves formal, analytical processes. It will result in a specific set of documents that are discussed and agreed by the board of directors (or the public sector equivalent) of an organisation – a tangible strategic plan for some years ahead.
• Typically, the plan will include sections predicting the general economic and political situation; exploring industry characteristics including economies of scale and degree of concentration; analysing competitors, their strengths and weaknesses; identifying customer demand; considering the resources available to the organisation; and recommending a set of strategies to meet these requirements.
• The strategy will primarily be driven by the objective of maximising the organisation’s profitability in the long term by seeking and exploiting opportunities in particular industries. The Singapore Airlines and Emirate case is an example here.
• The major argument of the theorists is that the purpose of strategy is to develop sustainable competitive advantage over competitors through choosing the most attractive industry and then resolving how to compete within that industry.
• Although these views were broadly endorsed by Kenichi Ohmae, it has been pointed out by Wilks that they remain largely Western and Anglo-American in their orientation.
• They are primarily concerned with profit and leave only limited room for social, cultural, governmental and other considerations.
• This view of strategy is therefore unlikely to appeal to countries which demand a higher social content from company plans
• Nation-state arguments are, however, a matter of degree and do not deny the need to make long-term profits in order to ensure the survival and growth of the enterprise.
• A more fundamental criticism of profit-maximising theories has been made by Hamel and Prahalad and Kay. They argue that, although competitors are important, the emphasis on competitive industry comparisons essential to such theories is misleading: it simply shows where organisations are weak. Such theories do not indicate how the company should develop its own resources and skills
• Moreover, as soon as all companies have access to Porter’s writings on industry analysis, Hamel and Prahalad and Kay have argued that the advantage ceases since all companies have the same knowledge and no company has an advantage.
• Hannan and Freeman took a differing view: they argued that markets are so powerful that seeking sustainable competitive advantage for the majority of companies is not realistic; only the largest companies with significant market share can achieve and sustain such advantage. For all the others, complex and detailed strategies are a distraction.
• From a different perspective, Mintzberg and others have criticised the industry-based approach by arguing that this is simply not the way that strategy is or should be developed in practice. In contrast, human-resource–based theories of strategy suggest that seeking to maximise performance through a single, static strategic plan is a fallacy. There are no clear long-term mission statements and goals, just a series of short-term horizons to be met and then renewed. Techniques that purport to provide long-term insights may be too simplistic.
• Mintzberg in particular has been highly articulate in his criticisms of the formal strategic planning process. However, he has subsequently modified his criticisms and accepted that some strategic planning may be beneficial to the organisation.

Resource-based theories of strategy

• Resource-based theories concentrate on the chief resources and capabilities of the organisation, especially those where the organisation has a competitive advantage, as the principal source of successful strategic management. Essentially, competitive advantage comes from the organisation’s resources rather than the environment within which the company operates.

• This does not mean that all the resources of an organisation will deliver competitive advantage – perhaps not the canteen or legal facilities of Singapore Airlines, for example. But some of the resources must be able to provide a distinctive competitive advantage in the market place if the company is to deliver above-average profits in that industry

• Writing in the 1960s, Drucker points out that it is important to ‘. . . build on strength . . . to look for opportunities rather than for problems’.

• One particular aspect of resource-based strategy, emphasized by US and Japanese strategists beginning in the 1960s and 1970s, was operations (manufacturing) strategy and the emphasis on total quality management.

• From a different theoretical perspective, resource-based strategy development has emerged as one of the key prescriptive routes in recent years.

• Researchers began to argue that the organisation’s resources were far more important in delivering competitive advantage:

• Wernerfelt, Peteraf, Dierickx and Cool, Kay and others have all explored aspects of what has become known as the resource-based view of strategy development. Essentially, although competition is explored, the emphasis in this approach is on the organisation’s own resources – its physical resources, such as plant and machinery; its people resources, such as its leadership and skills, and, above all, the ways that such resources interact in organisations. It is this combination of resources that delivers competitive advantage, because such a combination takes years to develop and may therefore be difficult for others to copy.

• In this context, the resource-based view draws a distinction between the general resources that are available to any organisation, such as accounting skills and basic technology, and those that are special and, perhaps, even unique to the organisation. It argues that it is only those special resources that deliver sustainable competitive advantage.

• An important recent development has been the treatment of the knowledge of the organisation as a key resource.

• It has been argued that the knowledge possessed by an organisation – its procedures, its technical secrets, its contacts with others outside the organisation – will deliver significant competitive advantages to many organisations. Some strategists have gone so far as to suggest that such knowledge is the only resource that will deliver sustainable competitive advantage. While this may be over-stated, knowledge is important in strategy development

• One of the main criticisms of resource-based theories is that, although they are good at analysing competitive advantage once it has been achieved, such theories have rather less insight into the pathways to developing competitive advantage and to responding to a constantly changing competitive environment.

• New theories and concepts with regard to the dynamics of resource-based theory are now in the course of development: they rest principally on concepts associated with an organisation constantly seeking new entrepreneurial opportunities and responding to resource changes by competitors.

Game-based theories of strategy

• Game-based theories of strategy focus on an important part of the prescriptive process – the decision making that surrounds the selection of the best strategic option. Instead of treating this as a simple options-and-choice model, game theory attempts to explore the interaction between an organisation and others as the decision is made – the game.
• Game theory begins by recognising that a simple choice of the ‘best’ strategy will have implications for other companies, such as suppliers and competitors. The consequences for others will be unknown at the time the initial choice is made by the organisation itself. The theory then attempts to model the consequences of such a choice and thereby allow for the choice itself to be modified as the game progresses. Game theory will include not only competitors, but also other organisations that might be willing to co-operate with the organisation.
• It will also involve negotiation with others, anticipation of competitive responses and the search for optimal solutions. Such a process may allow all competitors in the market place to win.
• Although game theory has been around since the 1940s, it is only relatively recently that it has been applied to strategy. The reason is that the complex world of strategy decisions is difficult to model adequately using the mathematical theory that lies at the foundation of game theory. In the last few years, strategists have begun to explore some key concepts without necessarily modelling every detail using strict mathematical analysis.

Co-operation- and network-based theories of strategy