Some Notes on Strategy: Art of Literature
Management strategy can be defined in many ways:
Chandler (1962) the scope of management strategy include the following company action:
(a) Determination of the basic long term goals and objecives; (b) Adoption of course of action; (c) Allocation of resources necessary for carrying out these goals.
Drucker (1964) summarize management strategy as policy action of an organization to manage results.
Andrews(1971) defines management strategy as the pattern of decisions that determines and reveals its objectives:
(a) to decide on company purposes or goals; (b) to produce the principal policies and plans for achieving goals; (c) and to Define range of business the companies want to achieve.
More recent publications: Stress either on strategy, strategic planning, and competitive strategy
Chorafas ( 1987) Implicit intention are not good enough. We need a master plan to get the business focussed. In this case strategy should be seen as (1)set of options; (2) informed choice among alternatives; and (3) master plan
Hill and Jones (1995) and Hitt. Etal. (1995)The are three levels of Management Strategy within an organization:
- the corporate level,
- the business level
- the functional level.
A. Corporate Level Strategy:
It means strategy to conduct businessCorporate strategy is concerned with:
- What business area should a company participate in as to maximize its long run profitability
- What strategies should it use to enter into and exit from business area. Long run profitability can be achieved though:
(a) vertical integration strategy: the company is producing its own inputs (backward or upstream integration) or is disposing of its own output (forward or downstream integration);
(b) strategic alliances is solving all the weaknessess from the above strategies( short term contract, francising, joint ventures, global cooperation);
(c) diversification strategy by using excess capital available to maintain a competitive advantage in the original or core business: (1) acquiring and restructuring; (2) tranfering competencies; and (3) economies of scope, i.e., two or more business units share resources.
can be pursued by the following ways: (a) internal new ventures strategy; (b) acquisition strategy; (c) joint venture strategy; (d) others
can choose from three main strategies: (a) Divestment strategy; (b) Harvest strategy (halting investment in a unit before liquidating) or (c) Liquidation strategy
Finally other important of corporate strategy, though it was a flawed management tool, is portfolio planning of Boston Consulting Group Matrix. Strategies are designed using 4 quadrant:
- Stars (Hi industry growth rate and hi relative market share)
- Question Marks
- Cash cows
- Dogs (Low industry growth rate and low relative market share)
B. Business Level Strategy:
It calls for SBU (Strategic business Unit) strategy. Focus on how an independent part of organization will grow or compete with its competitors.Different kind of strategy need to be exploited for each business segment, lines of business or SBU, to take the greatest advantage of its resources and the opportunities confronted by the company. Three generic competitive approach (Porter Model):
- Cost leadership strategy is doing everything it can to produce goods or services at a cost lower than competitor(s)
- Differentiation strategy is creating a product or service that is perceived by a customer to be unique in some important way
- Focus strategy is concentrating on serving a particular market niche (by geography, type of customer, or segment of the product line) A unique approach to classifify the SBU strategy is to select the range of strategy according to stages of life cycle of product in an industry:
- Embryonic strategy: Share Building strategy(Strong competitive position)
- Growth strategy: Growth strategy (strong competitive position); Market Concentration strategy(weak position)
- Shakeout strategy: Share Increasing strategy(strong competitive position); Market concentration; harvest or liquidation strategy(weak competitive position)
- Maturity strategy: Hold and maintain strategy(strong competitive post); Harvest or liquidation strategy(weak position)
- Decline strategy: Market Concentration strategy; Harvest strategy; Asset Reduction strategy(strong competitive position); Turn Around, Liquidation or Divestiture strategy (weak competitive strategy). When we are facing the global market environment there are four basic strategies available: Global strategy which is increasing profitability by reaping the cost reductions that comes from experince curve effects and locational economies (local, aglomeration, urbanization)
Transnational strategies exploits experience-based cost economies, location economies, tranfering distintive competencies within company and paying attention to local pressure responsiveness
International strategies is creating value by tranferring valuable skilss and products
Multidomestic strategies stressing toward achieving maximum local responsiveness
C. Functional Level Strategy:
Functional strategies are the means through which the functional units, such as marketing, finance, production,research and development, and manufacturing, accomplish their objectives. Wheelen and David Hunger (2002) see it indifferent perspective. It is a functional area approach to achieve corporate and business unit objectives by maximizing resource productivity. It is concerned with developing and nurturing a dictinctive competence to provide a company or business unit with a competitive advantage. To be considered a distinctive competency, the competency must meet three criteria:
- customer value: contribute to customer perceived value
- Competitor unique: unique and superior to competitor capabilities
- Extendibility: somtehing that can be used to develop new products and services. Competencies can be achieved through the following ways:
- Asset endowment by copyrights, monopoly power
- Acquired from others by merging, buying or licencing
- Shared with other business unit or alliance partners by joint venture etc.
- Built overtime by learning from experience Stanford (1983) has prepared a comprehensive reviews of literature which conclude that the means to adopt fuctional strategies can be in the form of : strategy, strategic thrusts, policies and plans or strategic plan. Functional strategy can be break down by major classification:
- Marketing strategy deals with pricing, selling, and distributing a product
- Financial strategy examines the financial implications of corporate and business-level strategy options and identifies the best financial course of action.
- R and D Strategy deals with product and process innovation and improvement
- Operation strategy determines how and where a product or services is to be manufactured
- Purchasing strategy deals with obtaining the raws materials, parts, and supplies needed to perform the operation function.
- Logistic strategy deals with the flow of products into and out of the manufacturing process.
- Human resource management strategy deals with the issues of employment deployment, productivity and incentivesI
- nformation system and technology strategies concern with the aplication of technology and information system to gain competitive advantage.
- Andrews, K.R. (1971). The Concept of Corporate Strategy.
Homewood, Ill.: Dow- Jones Irwin.
- Chandler, A.D., Jr. (1962) Strategy and Structure: Chapters in the History of Industrial Enterprise, Cambridge, MA: MIT Press.
- Chorafas, D.N. (1987) Strategic Planning for Electronic Banking. London: Buuterworths.
- Druker, P>F (1964). Managing for Results.
New York: Harper & Row.Hill and Jones (1995). Strategic Management.Hitt. Et.all (1995). Strategic Management.
- Stanford, M.J. (1983). Management Policy.Englewood Cliffs, NJ: Prentice Hall.
- Weston and others. (1990) Takeovers, Restructuring and Corporate Governance
- Wheelen, Thomas L. and J David Hunger (2002). Strategic Management and Business Policy, NJ: Prentice Hall. .