Strategic Management Notes: Strategy, Goals, and Performance

Strategy, Goals & Performance

What is Strategy?

  • A unified, comprehensive, and integrated plan to achieve enterprise objectives.
  • Creation of a sustainable competitive advantage.
  • A broad formula for how a firm will compete, its goals, and necessary policies.
  • The decision process aligning firm capabilities with environmental opportunities and threats.
  • A conceptualization of long-term objectives, broad constraints, and near-term plans.
  • A timed sequence of internally consistent and conditional resource allocation decisions.

Mintzberg’s Five P’s for Strategy

  • Plan: Consciously intended course of action, a plan made before actions.
  • Ploy: Specific tactic, maneuver.
  • Pattern: Stream of actions, (un)intended consistency, emergent strategy (seen after the action).
  • Position: Niche in the environment defined by product-market mix, resources.
  • Perspective: Shared norms, values, commitments to ways of acting and responding.

Deliberate & Emergent Strategies (Mintzberg)

  • Intended Strategy: The original plan.
  • Deliberate Strategy: The parts of the intended strategy that are realized.
  • Emergent Strategy: Strategies that emerge from actions not part of the original plan.
  • Unrealized Strategy: The parts of the intended strategy that are not realized.
  • Realized Strategy: The strategy that is actually implemented (combination of deliberate and emergent strategies).

Porter: Five Forces Shaping Competition

  • Potential Entrants: Threat of new competitors.
  • Suppliers: Bargaining power of suppliers.
  • Buyers: Bargaining power of buyers.
  • Substitutes: Threat of substitute products or services.
  • Rivals: Intensity of competitive rivalry.

My View of Strategy

  • Means of achieving desired ends
    • Goal-driven
    • Implies a set of actions
  • Intentional
    • Not necessarily formal planning
    • Not unconscious patterns of actions, etc.
    • Emergent strategies are included
      • Originate from unconscious/unintended actions in the past
      • Awareness of pattern → modify current/future intentions
  • Aided/Constrained by environment
  • Aided/Constrained by own resources
  • Reciprocal influence between actor and environment
    • Social enactment processes

Elements of Strategy Development

  • Corporate Mission & Strategic Vision.
    • Explains the relationships between the mission, vision, target, and objectives (goals).

The Mission

  • Overall purpose of the organization.
    • Why does the organization exist?
    • What business are we in?
  • Functions of a Mission Statement
    • Direction: Defining the boundaries of strategic choices & actions.
    • Legitimization: Convincing stakeholders (inside & outside) that the firm is pursuing valuable activities in a proper way.
    • Motivation: Inspiring individuals to work together in a particular way.

Vision, Goals, Objectives

  • Vision (Strategic Intent):
    • The desired future state of the organization (in its environment).
    • The aspirations on which strategists are trying to focus attention.
    • Relatively vague, many details left out, like political promises.
  • Goals:
    • General aim in line with the mission. (possibly quantitative)
  • Objectives:
    • Usually quantitative or at least more precise targets.
    • Relatively concrete milestones/benchmarks in line with the goals.

Classical Framework of Strategic Management

  • Mission $\rightarrow$ Goals $\rightarrow$ Strategy formulation (Corporate, Business-unit, Functional, Operating) $\rightarrow$ Implementation $\rightarrow$ Control & monitoring
  • Strategy formulation is informed by both internal (company) analysis and external (industry) analysis

Grant’s Version: Applying Strategy Analysis

  • Identify the current strategy $\rightarrow$ Appraise performance $\rightarrow$ Diagnose performance $\rightarrow$ Industry analysis & Analysis of resources & capabilities $\rightarrow$ Formulate strategy $\rightarrow$ Implement strategy
  • Performance has heavy emphasis & driving role.

Why Are There So Many Different Views?

  • Broad scope of strategic management issues
    • Many Levels of Analysis
  • Study those issues using different approaches
    • Different fields/disciplines (ex. economics, sociology, psychology, biology)
    • Different paradigms
      • Research questions (What is foreground vs. background?)
      • Assumptions (Simplify studying that question.)
      • Units of analysis (ex. person, firm, corp., industry, transaction)
      • Analytic techniques

Levels of Strategy

  • Corporate Level: Focuses on the overall scope and direction of the firm.
  • Business Level: Focuses on how to compete in a specific industry or market.
  • Functional Level: Focuses on specific functions within the business, such as marketing, finance, or operations.
  • Network Level: Focuses on the relationships and alliances between different organizations.

Schools of Thought: Mintzberg

  • Design, Planning, Positioning, Entrepreneurial, Cognitive, Learning, Power, Cultural, Environmental, Configuration

De Wit & Meyer Textbook: Debates in Strategy

  • Details a series of tensions in strategy, including:
    • Strategic Thinking: Logic – Creativity, Rational Thinking – Generative Thinking
    • Strategy Formation: Deliberateness – Emergentness, Planning – Incrementalism
    • Strategic Change: Revolution – Evolution, Discontinuous Change – Continuous Change
    • Business Level Strategy: Markets – Resources, Outside-in – Inside-out
    • Corporate Level Strategy: Responsiveness – Synergy, Portfolio – Core Competence
    • Network Level Strategy: Competition – Cooperation, Discrete Organization – Embedded Organization
    • The Industry Context: Compliance – Choice, Industry Evolution – Industry Creation
    • The Organizational Context: Control – Chaos, Organizational Leadership – Organizational Dynamics
    • The International Context: Globalization – Localization, Global Convergence – International Diversity
    • Organizational Purpose: Profitability – Responsibility, Shareholder Value – Stakeholder Values

Schools of Thought & the Textbook (Grant)

  • Grant takes a very strong economics / finance approach.
  • A valid and useful school of thought, BUT often biased view of complex debates.
  • Simplifying assumptions often get confused for facts.
  • The lecture will try to balance the views.
  • Exam questions will indicate which view to give: “In the book, Grant claims …” “In the lecture, the definition…”

The Shareholder vs. Stakeholder Approach

  • The shareholder approach: Firm exists to maximize the wealth of their owners.
  • The stakeholder approach: Firm as coalition of interest groups—balance different objectives.
  • Grant: For the purposes of strategy analysis we assume that the primary goal of the firm is profit maximization.
    • Grant recognizes this is important & a huge debate, BUT he believes models work better if they assume profit maximization.
    • This is METHOD BIAS: change the view of reality because the math is easier!
    • The presenter prefers a stakeholder approach.

Grant’s Rationale: Firms maximize shareholder value because…

  • A firm must earn profits to survive. (That argues for satisficing, not maximizing)
  • Firms with low stock values are vulnerable to acquisition. (That argues for satisficing, not maximizing)
  • Convergence of interests—long run profitability requires:
    • satisfied customers,
    • motivated employees, and
    • good relations with governments and communities.
    • So we can assume firms will be good because it is good for business.

Shareholders: Owners or Just Investors?

  • Stockholder: “I own the firm. You work for me. ”
  • CFO: “You only own a piece of paper. ”
  • Buying shares is like buying CDs: They are financial instruments.
  • Are shareholders loyal to the firm? Or would they sell their shares to make profit (avoid loss)?
  • Only owe shareholders enough to attract investment. Nothing more.
  • Adam Smith: the invisible hand guides self-interest towards the common good.
    • “Greed is good”
  • Milton Friedman: Only one responsibility of business—profits.
    • The government is responsible for criminalizing unethical behavior.
    • But, believers also argue that government regulation is bad. “Government cannot fix the problem. Government IS the problem. ”

Strategic Management: Integration of Internal and External Factors

  • Data and insights are gathered from both the external and internal environments.
  • Factors considered include:
    • External: Customers, Market, Competition, Societal norms, Regulation, Technology
    • Internal: Incentives, Salaries, Culture/history, Competencies, Resources
  • This inform strategic thinking, analysis of competitive position and broad strategies in order to create new strategies and continuous learning.

How to Study Strategic Management

  • Integrates different threads of business research
    • Different fields/disciplines/paradigms ex. economics, sociology, psychology, biology
  • Competing theories/models
    • Metaphors for guiding our thought processes
    • Half-truths (thus half-fallacies)
    • How far can you push the metaphor before it breaks down?
  • Each view gives unique information—try to integrate them.
    • Analogy: 3 blind men feeling an elephant
  • Be a critical consumer
    • You must learn all the models, but don’t believe any of them!!!

Handling Strategy Debates (Tensions)

  • Illustrates thesis, antithesis and synthesis using a trade-off line.
  • Shows pressure for B versus Pressure for A

Possible Ways to View the Tensions

  • Tension as Puzzle
    • (One optimal solution point)
    • 'Find the best'
  • Tension as Trade-off
    • (One optimal solution line)
    • 'Strike a balance'
  • Tension as Dilemma
    • (Two 'either-or' solution points)
    • 'Make a choice'
  • Tension as Paradox
    • (Multiple innovative reconciliations)
    • 'Get the best of both worlds'

Tricks for Resolving Paradoxes

  1. Opposition
    • Accept the inherent differences and use them constructively
  2. Spatial separation
    • Use different approaches across departments, regions, SBUs, etc.
  3. Temporal separation
    • Take time into account: stages, cycles, etc.
  4. Synthesis
    • Introduce new terms to resolve the paradox

Rumelt’s Criteria for Evaluating Strategy

  • Consistency: Elements do not contradict each other
  • Consonance: An adaptive response to the environment
  • Advantage: Attempts to create a competitive advantage (More generally: achieve the objectives of the firm)
  • Feasibility: Does not overwhelm resources