unit 2: the concept of strategy 1. a.definition “strategy is the direction and scope of an...

UNIT 2:

THE CONCEPT OF STRATEGY

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A. Definition

“Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations”. (Johnson Scholes & Whittington, 2008)

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In other words, strategy is about:

•  Where is the business trying to get to in the long-term (direction)

• Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope)

• How can the business perform better than the competition in those markets? (advantage)?

• What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?

• What external, environmental factors affect the businesses' ability to compete? (environment)?

• What are the values and expectations of those who have power in and around the business? (stakeholders)

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Strategic decisions are about:

• The long-term direction of an organization• The scope of an organization’s activities• Gaining advantage over competitors• Addressing changes in the business

environment• Building on resources and competences

(capabilities)• Values and expectations of stakeholders

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Therefore they are likely to:

• Be complex in nature

• Be made in situations of uncertainty

• Affect operational decisions

• Require an integrated approach (both inside and outside an organization)

• Involve considerable change

B. Characteristics

• Business domain

- Scope of an organization’s activities.

- Product/market scope.

- What the organization will do and what it will not do.

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• Long term direction of an organization

- Where are we going?

- Organizational vision

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• Strategic fit

- Matching of the activities of an organization to the environment.

- Environment dependence

Competitive advantage

– Basis for attracting customers

• Cost leadership

• Differentiation

• Focus

- Positioning

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C. Strategy

• Company strategies are concerned with:- How to grow the business

- How to satisfy customers

- How to out compete rivals

- How to manage each functional area

- To develop requisite capabilities

- How to achieve company objectives

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Strategy

• Strategy is partly proactive and partly reactive

• Proactive actions to improve performance

• Reactions to unforeseen developments

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D. Levels

• Corporate strategy

- Overall purpose and scope of the business to meet stakeholder expectations

- Overall business domain

- Corporate resource allocation

- Value addition to the different parts of the organization

- (“2+2=5”); Out sourcing; core business)

- Principal focus → Effectiveness

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• Business strategy- Competition with other business in the market- Achievement of competitive advantage- Focus on the “strategic Business Unit (SBU)• SBU-Part of the organization for which there

is a distinct market for goods and services

• Note: Distinct markets require different strategies.

- Principal focus →Effectiveness

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• Functional (Operational) strategy

- How the various functional areas contribute to achieving business and corporate strategy.

- Organizational processes

- Principal focus →Efficiency

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• “Without strategy, the organization is like a ship without a rudder, going around in circles”.