Introduction: What Is Strategy?: Unit 1

Strategy
Unit 1
Introduction: What is
Strategy?
Prepared by Dev K. Boojihawon and Susan Segal-Horn
Masters
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Business School
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2.1
CONTENTS
1 Introduction 5
1.1 The course 5
1.2 Introduction to strategy 8
1.3 Learning outcomes of this unit 8
2 The importance of strategy 9
3 Defining strategy 15
3.1 The development of strategic management thought 15
3.2 What is strategy? 17
3.3 How do strategies arise? 24
4 The strategy process 29
4.1 What is the strategy process? 29
4.2 The ‘strategy process’: an organising framework
for the course 34
5 Summary and conclusion 37
References 38
Acknowledgements 40
1 INTRODUCTION
INTRODUCTION
1
1.1 THE COURSE
This course is about those actions that determine whether an
To study this unit
organisation survives, prospers, or dies. Strategy constitutes the you need:
process through which such actions are developed and
implemented, and as a result it is critical to the relative success of
an organisation in its business context over time – irrespective of ��
��
how we define ‘success’. This applies to organisations in all sectors
and industries, and regardless of the way strategy is made.
For managers, strategy involves a great many activities, and
understanding those that make a difference to the success of an
organisation is a key skill. Generally, managers should pursue a
chosen strategy with consistency and commitment. They need
to understand the challenge posed by their organisation’s
environment, and to see how they can best exploit their
organisation’s potential sources of advantage. In turn, this means
that they need to understand their organisation: its resources and
capabilities and the way it competes for scarce resources and
customers for its products or services. Managers must be able to
act on incomplete information and uncertain predictions of an
unknown future, and they must be able to seek out sources of
innovation in the way their business operates and competes.
Managers must also be able to implement effective change and to
align collective objectives in their organisation to allow the
development of new capabilities and skills.
This is the first of eight units that form the core of your learning
on B820 Strategy. They complement other media such as the
Course Reader, face-to-face seminars, electronic conferencing,
residential school, assignments, and case studies to form a whole.
These units, along with the Course Reader, provide much of the
basic knowledge and understanding you need on the course. They
do, however, go beyond this and ask you to apply that knowledge
to real-life examples and case-study situations, and to reflect on
and challenge your understanding of strategy.
The course also goes beyond merely presenting frameworks for
strategy analysis and planning. The techniques of strategy analysis
have long been available on the open market. We will test theories
and models, develop new ideas and also discard some that no
longer seem so valuable. Mere knowledge of these models,
techniques, frameworks and theories – however up to date or well
informed – cannot confer any advantage upon you over any other
manager who has chosen to be as well informed. What is
5
UNIT 1 INTRODUCTION: WHAT IS STRATEGY?
important is the way you use these techniques, the rigour and
realism of your thinking when you apply them, the innovation
and insight you can bring to the process, and the quality of the
arguments and conclusions you develop as a result of using them.
The prime purpose of this course is, therefore, to improve the
quality of your strategic thinking.
1.1.1 The course content

Students join B820 from very different backgrounds and
experiences. Irrespective of your own background or your career
experiences, we assume you are starting this programme with a
willingness or need to understand and manage an organisation – a
collection of people pursuing a common mission – from a strategic
perspective. You might already have an insight into the strategic
perspective from your own career experiences, from colleagues,
consultants, the business press and any other business education
courses you have previously undertaken. In this course, we not
only revisit general ideas and concepts you may have encountered
earlier but also pursue the issues, theories and mindset that
constitute strategic thinking in more depth.
An iterative process The content and organisation of this course are structured around the
involves cycles of framework presented in Figure 1.1. The course views strategy as an
continuous review and
evaluation. iterative process through time. It argues that all forms of strategic
thinking and decision making (from analysis all the way through to
implementation) are influenced by a combination of internal and
external factors, and take place in dynamic contexts, and facing an
uncertain future. The implicit assumption is that as a manager of a
given organisation, or as a student of strategy, you are able to:
l objectively assess the organisation or
firm and its environment (analyse)
l formulate and select a pattern of
activities that maximises the chances
Pro
t
for success (choose)

tex
ces
Analysing
Con
l implement the selected pattern of

activities within the constraints of
dynamic internal and external contexts
Choosing Implementing
(implement).
Take time to look at Figure 1.1 now: we
will be referring back to it throughout
Unit 1.
Content
The course begins in Unit 1 with an
introduction to strategy and a discussion of
Figure 1.1 The strategy process what strategy is and why it is important.
(Johnson and Scholes, 1993; Pettigrew, 1988) We then consider the role of analysis in
defining and shaping strategy. Reviewing
the search for an effective interaction
between an organisation and its
environment, we focus particularly on the
6
1 INTRODUCTION
search for potential sources of competitive advantage, and the

importance of an organisation’s unique resources and capabilities in
identifying and creating potential advantage. Indeed, the concept of
competitive advantage for an organisation within the industry or
industries in which it competes is central to our view of strategy.
A useful definition of competitive advantage is given by Porter
(1985, p. 3) as:
Competitive advantage grows fundamentally out of value a firm is
able to create for its buyers that exceeds the firm’s cost of creating it.
In Unit 2, the different factors affecting how organisations compete

(or co-operate with other organisations) to create such value for
customers, and the different bases for choosing a strategy, are
described and analysed in terms of the external context. In Unit 3
they are discussed in terms of how they are affected by the
organisation’s internal resources and capabilities. Strategic analysis
also includes stakeholder analysis to help identify, align and
manage interest groups with the objectives of the organisation, and
this is examined in Unit 4. An extensive discussion follows in Unit 5
of some of the most significant approaches to choosing a strategy,
together with techniques for evaluating them – both within
individual businesses and at the corporate level of the organisation.
Equally critical to strategy is how specific strategic choices or sets
of choices are implemented. Therefore, Unit 6 discusses the
relationship between strategy, structure, culture and management
processes. This unit also addresses the implications of organisational
change for strategy.
The whole strategy process is then reconsidered from an
international perspective in Unit 7, where strategic implications for
organisations pursuing strategies across international borders are
considered. As Unit 7 explains, international strategies involve both
additional complexity and opportunity for organisations. The course
concludes with Unit 8, which highlights key themes from the
course and discusses developments that are likely to shape strategic
thinking in the years ahead. Unit 8 cuts a clear pathway through
all the concepts and frameworks in the course, to remind you of
what really matters in your strategic thinking.
1.1.2 Learning outcomes of the course

By the end of the course you should be able to:
l think strategically – have an awareness of what analysis, choice
and implementation of strategy each require – through applied
work on the case material and investigations into your own
organisation’s strategic activities
l understand the concepts, theoretical ideas and empirical
research findings which underpin the study and management
practice of strategy
7
l evaluate and apply these concepts, theoretical ideas and

empirical findings to develop your own views on strategic
decision making in organisations
l develop your strategic thinking through reflection on
organisational practice and your own experience.
1.2 INTRODUCTION TO STRATEGY

The aim of Unit 1 is to help you understand and think critically
about strategy, while familiarising you with what strategy is and
how the processes of analysis, choice and implementation can help
achieve superior performance. At the same time, this unit provides
a course ‘map’ explaining how the strategy process forms the
organising framework of the whole course.
In Section 2, we explain how strategy can have a significant impact
on an organisation’s success. This is followed in Section 3 by a
discussion of what strategy is. It identifies the key developments in
strategic thinking and contrasts the different views that characterise
its evolution to date. We then consider, in Section 4, the strategy-
process framework, drawing your attention to the course’s view
of strategy and how the different units explore the skills and
knowledge needed in thinking strategically – which is the capability
that B820 takes as the prime focus for your development as
managers.
1.3 LEARNING OUTCOMES OF THIS

UNIT
By the end of this unit, you should be able to
l identify the role strategy can play in the performance of your
organisation
l describe the origins and development of strategic thinking
l distinguish between different approaches to strategy making
l recognise the different levels at which strategy operates
l appreciate the various stages of strategy analysis, choice and
implementation
l be aware of the philosophy, organisation and content that
encompass the scope of this course.
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8
2 THE IMPORTANCE OF STRATEGY
THE IMPORTANCE OF
2 STRATEGY
Why does an organisation need strategy? The essence of strategy

lies in how it enables an organisation to succeed. This course
attempts to illustrate exactly how that comes about. We begin with
two mini-cases, which tell the stories of two organisations, each
successful in different contexts. We then discuss the key elements
underpinning their successful strategies.
ACTIVITY 2.1
What do you consider were the bases for success for each of
the organisations whose cases are described in Boxes 2.1
and 2.2?
BOX 2.1
VODAFONE
Vodafone Group Plc established as Vodafone in 1985, when its

parent company Racal Telecom won the tender to construct the
UK’s second cellular telephone network. From the start, Vodafone
had identified mobile communications as a market with enormous
growth potential and it established a vision to become the world’s
leading wireless telecommunications provider. To achieve this
vision, Vodafone invested heavily, focusing all its efforts and
resources on mobile communications and related activities, to keep
up with the expansion of mobile services throughout Europe. By
1988, Vodafone was a leading competitor and was listed on the
London and the New York stock exchanges. In 1989, it became fully
independent following a de-merger from its parent company Racal.
By 1995, turnover and profit had more than doubled. Its strategic
direction remained unchanged as it relentlessly developed its
existing business both in the UK and overseas, by gaining new
licences and acquiring interests in existing network operating
companies. Increased international ambitions and acquisitions
were necessary to maintain market leadership. Mobile telephony
had suddenly become a global market, with aggressive global
players (like Orange) becoming growing threats to Vodafone’s
long-term growth. To enhance its international spread, Vodafone
purchased significant shares of mobile networks in France and
Hong Kong.
Vodafone also relied on its high-quality mobile telecommunications
services and products. Along with network services, Vodafone’s
9
Value Added and Data services offered voicemail, short message

services (texting) and paging. Until recently, it increased its
capability to add further value by launching its commercial GPRS
roaming service across Europe. Vodafone intends to continue
expanding this service to its customers across the globe through
partner networks.
The year 1999 marked the decision by the UK government to
auction five third-generation mobile telephone licences that was to
transform Vodafone’s future. Third-generation wireless technology
meant further capability development and better quality products
and services that enabled the transmission of multimedia
communications using hand-held devices. Vodafone negotiated
several collaborations with suppliers and partners to make the most
of this opportunity. It intended to stay at the forefront of third-
generation mobile communications technology as the world entered
the wireless information age.
In January 1999 it was announced that Vodafone and AirTouch
had agreed to join forces to create the world’s largest mobile
telecommunications group. In 2000 (in one of the first acquisitions
of a major German company by a foreign firm and subsequently
the subject of a legal enquiry in Germany), Vodafone acquired a
majority interest in the German company Mannesmann AG, adding
30 million customers to its market share by accessing the private
D2 mobile telephone network operated by Mannesmann. In 2001,
Vodafone International Holdings BV, a subsidiary of the Vodafone
Group, completed the purchase of 21.7% of Japan Telecom.
In 2002, Vodafone announced an agreement with Ericsson
(of Sweden) to supply multimedia messaging software, that will
allow users to compose, send and receive messages using all
forms of media including text, pictures, audio and video clips.
It also acquired Vivendi’s 50% stake in the Vizzavi Group of
companies, giving Vodafone ownership of the joint venture with
the French company.
Vodafone Group has achieved what it set out to do. It has met the
goals set out by its ambitious chairman Chris Gent. It became
the world’s leading telecommunications organisation, with a
market capitalisation figure in excess of £150 billion. All along,
it maintained a strategy of focusing on global mobile
telecommunications and providing network coverage that would
allow its customers to communicate using mobile products and
services, and its vision still has not changed.
In 2003, Vodafone reported its vision as:
‘to be the world’s mobile communications leader offering innovative
services within Vodafone-branded, end-to-end customer
propositions, which utilise the Group’s global footprint and global
brand to offer customers a unique mobile experience and seamless
international services.’
Source: Compiled by the author from the Vodafone website
10
BOX 2.2
TCL: CHINA’S TV DRAGON
Li Dongsheng, chairman of TCL, one of China’s leading consumer

electronics companies, is contemplating how when he joined TCL in
1982 the organisation was a tiny cassette-tape assembler, financed
by a $600 loan from the Huizhou city government and run out of an
old warehouse. Today TCL employs more than 40,000 workers in
factories in China, Vietnam, the Philippines, and Germany, making
televisions, mobile phones, notebook PCs, refrigerators, and air
conditioners. What is more, TCL has also assumed control of the
world’s largest television manufacturing operation.
In 1982, following his graduation as an electrical engineer, Li and a
few other engineers founded a cassette-tape assembly operation.
Sales boomed, and as China’s economy expanded, Li and his
colleagues opted to shift production into telephones; this was the
impetus to build a nationwide sales and service network. TCL
produced its first television set in 1992. In 2003, it shipped
11.5 million televisions, up 43% from 2002. Of that, 3.8 million
were sold overseas, mostly under the brand names of Philips,
Thomson, and Panasonic. In recent years, TCL has begun
attracting Asian customers with products sold under its own brand.
TCL products claim a 14% share in Vietnam, 8% in The
Philippines, and has wide name recognition in India and Pakistan.
The business has diversified into consumer electronics products,
but televisions and mobile phones are the mainstays. TCL’s
competitive edge in China has been to provide quality products
complemented by a reliable sales and service network.
Li, who has spent his entire career at TCL, is widely credited as the
force behind TCL’s expansion. He is known for aggressive marketing
and a relentless focus on cost control. And he is very ambitious – he
has vowed that over the next decade TCL would increase sales
tenfold and enter the Global 500 as a ‘world-class enterprise’.
An alliance with Thomson is designed to help TCL keep that
pledge. In 2003, TCL struck a $560 million deal to merge its
television manufacturing facilities with those of French consumer
electronics giant Thomson, which allowed TCL to switch production
operations to Thomson’s manufacturing plants in Poland, France
and Thailand. The resulting merger, in which TCL will hold a 67%
stake, is expected to have sales of $3.5 billion and ship more than
18 million televisions in 2004. The agreement constitutes one of
the biggest deals between a Chinese company and a Western
enterprise. It gives TCL effective control of Thomson’s television
plants in France, Poland, and Thailand.
TCL’s investment in Thomson is the latest and most dramatic
example of China’s determination to put its own stamp on the
global marketplace. China’s planners and executives want to follow
the path traced by Japan and South Korea, in which once
11
unknown domestic organisations like Toyota and Samsung became

successful global brands.
But can TCL make it? Analysts believe that it has a good chance.
For one thing it has cash. In the first three quarters of 2003, it
earned $169 million on sales of $4.2 billion. For another, its home
operations are in good shape. In 2002, TCL claimed a 19%
domestic market share, and it is the only Chinese TV producer to
consistently gain market share and show a profit. But what really
sets TCL apart is strategy. TCL is expanding rapidly. With the
Thomson deal, it gets direct penetration of the world’s two richest
markets, North America and Europe, right away. The challenge,
however, is that Thomson’s technology and quality are not as good
as that of Sony and Philips: the French company’s TV and DVD
operations lost more than $100 million in 2003.
TCL’s strategic plan can work but only if it is allowed to reinvent
itself as a fully market oriented business. To that end, it has
lobbied tirelessly to minimise government ownership and has been
surprisingly successful in this. As recently as 1996, TCL was 80%
owned by the city of Huizhou. But Li has persuaded the authorities
to allow steady dilution of that stake by issuing new shares. After a
complex restructuring in January 2003 that raised $330 million, the
Huizhou government’s stake is down to 25%. The general public
now owns 38% of the company, while foreign partners own 14%.
Li owns 6%. The merged company will be able to shift production
easily to less expensive facilities in China and to realise greater
scale economies. Thomson’s plants also give cover against trade
actions directed at China.
Source: Kim and Wang (2004)
DISCUSSION
A common feature in each of the two cases is that both
organisations demonstrated consistency and commitment of
direction, based upon a clear sense of purpose about their
objectives to grow into world-class businesses, while astutely
and creatively taking advantage of all opportunities to build
the strongest position possible. These cases illustrate four
common elements that contributed to their successful growth:
1 Both organisations had simple and consistent vision and
goals.
l From the start, Vodafone had identified ‘mobile
communications’ as a market opportunity with a strong
growth potential. To exploit that opportunity, its goal
was to become the world’s leading provider of mobile
telecommunications services – a vision that it has
consistently pursued.
12
l Compared to Vodafone, TCL had a modest start, but the

ambition of its leader was consistently aiming for TCL to
become bigger and more internationally competitive. Its
success in domestic China, and the subsequent support for
its products by the global brands of consumer electronics
(like Panasonic and Philips) provided strong building
blocks towards realising their long-term strategic intent.
2 Both organisations demonstrated a thorough appreciation
of the external environment in which they were operating.
l Vodafone had a clear understanding of the growth
potential of the mobile communications market. It also
anticipated market and technological trends in designing
and delivering high-quality products and services for its
customers. In each market it penetrated, Vodafone kept a
close eye on potential competition. It either acquired parts
of competitor operations or formed value-adding alliances,
thus engaging competitors as partners and collaborators.
Vodafone was also quick to assess and respond to the
UK government’s initiative to give licencing for third-
generation mobile technology. It made dramatic
investments to secure its leadership position.
l TCL was also operating in an aggressive industry dominated
by such global brands as Sony, Philips and Panasonic. The
products of these global players had already set the quality
standards for TCL to match or outperform in order to succeed
internationally. TCL was also subject to strong government
influence in its strategic decisions. It lobbied for minimal
government intervention to provide room for greater
strategic flexibility (e.g. the deal with Thomson of France).
TCL was also insecure about China’s position in international
trade. Any sanctions against China could result in TCL’s
failure. In anticipation of any such occurrence, it created an
option, by means of the Thomson merger, to switch
production operations to Poland to protect its business.
3 Both organisations had an acute awareness of their
available resources.
l Vodafone started with substantial resources to develop
rapidly into a global leader. Racal Telecom (its original
parent) was already an established operator in the
telecommunications industry with infrastructure in the UK.
It also had a strong knowledge base and expertise as a
first mover into the mobile communications business.
Furthermore, it continually invested in technologies to
enhance the quality of its products and services. For
example, the integration of the general packet radio
service (GPRS) technology improved the value-added
13
services Vodafone could provide. Vodafone also increased

the consistency of service delivery by extending its
network coverage through partner networks, which
gradually extended the resource base (e.g. the agreement
with Ericsson).
l Using its domestic market success as leverage, TCL was
a cash-rich organisation. Furthermore, it had acquired
wide-ranging skills and capabilities in producing quality
consumer electronics products, with key competences in
TV and mobile phone production. It had extensive
marketing expertise and knowledge of creating a reliable
sales and service network which it could enforce
internationally. A major asset was, undoubtedly, the
determination, expertise and skills of Li as its leader.
4 Both organisations were very effective in implementing
strategies.
l Vodafone stayed focused and committed to its vision. All
its initiatives and actions were driven towards realising
that vision. It consistently penetrated new markets and
continually introduced new products and services to
increase its global presence and customer base. It acquired
interests in internationally established networks in different
countries. Instead of growing slowly and organically, it
formed strategic alliances with suppliers, to secure
technologies and partners that ensured rapid network
coverage.
l TCL attempted to penetrate the Asian as well as the Western
markets to become a world-class operator. It expanded into
Asian markets gradually, gaining brand recognition for its
own labels. It maintained consistent domestic growth to
support international expansion and diversified into several
product ranges in consumer electronics. The merger with
Thompson provided direct access to North America and
Europe simultaneously. To support the merger, it planned to
shift production to lower-cost locations to gain economies of
scale and a better competitive edge vis-à-vis international
competition in the future.
These observations are simple illustrations of the practice of
strategy in organisations. Whether we look at business,
politics, warfare or our own lives, ‘success’ is rarely the result
of pure chance, or of possessing superior resources alone.
Successful strategy requires that we recognise opportunities,
and develop a clear sense of vision, commitment and
flexibility to exploit them to our advantage and for success.
This is the beginning of strategic wisdom.
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14
3 DEFINING STRATEGY
DEFINING STRATEGY
3
As with Vodafone and TCL, organisations use strategy to provide
direction, to allocate resources effectively and to co-ordinate
multiple decisions from different parts of the organisation in pursuit
of their objectives. But despite its important role, there is no single,
universally accepted view or concept of what strategy actually is.
In Section 3, therefore, we provide an overview of the major
developments and debates in strategic management and introduce
some contrasting views on strategy to encourage you to develop
your own critical understanding of strategy.
3.1 THE DEVELOPMENT OF STRATEGIC

MANAGEMENT THOUGHT
ACTIVITY 3.1
In each unit you will be asked to read selected articles from
the Course Reader, with accompanying activities. The Reader
articles and activities form an essential part of the learning
throughout the units and the course. Please now read the
Introduction ‘The development of strategic management
thought’ in the Course Reader.
While reading the Reader Introduction, please consider what it
says about definitions of strategy and the nature of strategic
issues. You should then write down your own definition(s) of
strategy and your own understanding of what constitutes a
strategic issue.
DISCUSSION
There are a number of stated or implied definitions of strategy

contained in the Reader Introduction. Two obvious examples
of formal definitions are:
1 ‘the determination of the basic long-term goals and
objectives of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for those
goals’ (Chandler, 1962)
2 ‘every business organisation, every sub-unit of organisation,
and even every individual (ought to) have a clearly defined
set of purposes or goals which keeps it moving in a
15
deliberately chosen direction and prevents it drifting in

undesired directions’ (Andrews, 1971).
Two further implied definitions may be attributed to Porter
and to Henderson:
3 ‘a process of analysis which is designed to achieve the
competitive advantage of one organisation over another
in the long term’ (Porter, 1985)
4 ‘to enable an organisation to identify, build and deploy
resources most effectively towards the attainment of its
objectives’ (Henderson, 1984).
Despite their differences in emphasis, all four definitions have
much in common. They speak of strategy as being concerned
with the long term; with determining the goals and objectives
of the organisation; and with the deliberate allocation of the
resources of the organisation to some activities rather than
others, in ways most likely to achieve those organisational
objectives. The definitions also imply that strategic
management involves a process of analysis that helps to
determine what those organisational objectives should be, and
how decisions about resource allocation might be arrived at.
It is further implied that some organisations may manage these
processes more or less effectively than others.
At this stage we should like to point out that, given these
definitions and their implications, the frameworks, concepts
and process of strategic management are equally important
and relevant for all types of organisation, whether local or
international, for-profit or not-for-profit (NFP), manufacturing,
service or technology based. The way strategic management is
applied may certainly differ according to context, but its
relevance is common to all.
From our brief discussion of the definitions of strategy, it
should already have become clearer what is meant when we
call something a strategic issue. To illustrate the point, we will
once again take some examples of strategic issues from the
Course Reader Introduction you have just read:
l What is the relative potential of an organisation’s various
business units and their relative potential as areas for
future investment?
l How is the organisation to achieve necessary levels of
economies of scale, or organisational learning, or technical
innovation, sufficient to enable it to match or exceed the
performance levels of rival organisations?
l Which of the organisation’s resources and capabilities are
likely to need to change over time in line with changes in
the marketplace or in technology?
16
3 DEFINING STRATEGY
l How are we to build and manage complex resource

clusters?
l How do we monitor and revise our strategies so as to
identify and respond to environmental turbulence?
l How do we determine the shape, size and purpose of our
organisation over time? What changes in organisational
structure and processes might be necessary?
l Which activities should our organisation continue to
perform internally, and which should we rely on other
organisations to contribute via outsourcing or co-operative
alliances?
All of these are strategic issues. What they have in common is
that they all:
1 are important
2 involve significant resource commitments
3 are not easily reversible.
These three points are often taken as the defining
characteristics of strategic decisions (Grant, 2002, p. 17).
All organisations, of whatever type, are located within an external

environment and they all have a particular set of internal
resources peculiar to each, set within a specific type of
organisational structure, culture and operating systems. Strategic
management, as set out within the eight units of this course, helps
managers to identify and co-ordinate all of these elements over
time. Strategic thinking is the ability to create an integrated
perspective from these elements and ‘have the imagination to
foresee alternative actions and the logic to analyse their
consequences’ (Henderson, 1984).
3.2 WHAT IS STRATEGY?

This section takes further our discussion of the nature of strategy
and strategic thinking. In order to understand what something is, it
is necessary to be clear about what it is not. The next reading is an
influential article by Michael Porter which makes a strong statement
about what strategy is and also about what, in Porter’s view,
it is not.
17
ACTIVITY 3.2
Please now read the article ‘What is strategy?’ by Porter in the
Course Reader.
Now that you have read the article, explain the difference
between operational and strategic thinking. What does Porter
mean when he says that ‘management tools have taken the
place of strategy’?
DISCUSSION
In his article, Porter stresses the necessity of distinguishing

between operational thinking and strategic thinking, although
both are essential for superior performance.
Operational thinking relates to those activities or sets of
activities that characterise the internal functioning of an
organisation on a day-to-day basis. Examples of such activities
include procedures to control quality of input and output,
systems for handling customer complaints, techniques for
minimising costs or cycle time, systems for managing
recruitment or performance-related rewards and so on. These
activities are set in place to create, produce, sell and deliver
products or services. Superior management of such activities
enables an organisation to better utilise its inputs, better
regulate its cost and risk levels, and enhance its ability to
manage itself effectively.
Strategic thinking, by contrast, considers the performance of
such systems and activities in their entirety. It is a way of
thinking that reflects on how all these activities connect and
relate to each other in achieving the objectives or mission of
the organisation. Strategic thinking asks not only how these
activities work together, but also how they can be aligned,
combined or performed differently to deliver a product or
service of distinct value to the market. Operational
effectiveness is essential to strategy implementation but it is
not a substitute for strategic thinking and decision making.
Many managers confuse the two. Clarity between operational
and strategic thinking is needed in order to understand and
manage the implications arising from an organisation’s choice
of a particular way to compete.
As Porter argues strongly, operational effectiveness is a
necessary, but not a sufficient, condition for superior
performance. For superior performance, strategy is essential in
order to guide and shape the operational activities. While it is
true to say that a successful organisation is one that integrates
both the operational and the strategic, that misses Porter’s point.
He is making it clear that they work in different ways. He is
scornful of the way that management fashions focusing on
18
3 DEFINING STRATEGY
continuous operational improvement (e.g. TQM, JIT, BPR) TQM: total quality
management
increasingly absorbed management attention throughout the
JIT: just-in-time
1980s and 1990s, with the result that ‘management tools have BPR: business processing
taken the place of strategy’. During this period, and as a result re-engineering
of this operational focus, Porter saw organisations becoming
more and more similar, thereby losing the distinctiveness that
is at the heart of competitive strategy. Managers should regard
the achievement of operational effectiveness ‘as a given’,
i.e. something that is simply expected in order to remain on a
par with other organisations in your sector. However, it is no
substitute for ‘deliberately choosing a set of activities to
deliver a unique mix of value’.
Why is it important for an organisation to carefully define and

support its competitive position and why does competition matter
at all?
3.2.1 Competitive strategy in commercial and

in NFP organisations
Porter (1985, p. 1) defined competitive strategy as ‘the search for
a favourable position in an industry’, and an industry as ‘the
fundamental arena in which competition occurs’. While this may
be immediately understandable in commercial organisations of
all types, NFP organisations may have difficulty both with the
language of competition and the relevance to them of the whole
concept of competition being at the heart of strategy. Intuitively,
many NFP managers do not think of themselves as operating
within a competitive environment with rival organisations. Indeed,
they often do not see themselves as operating within an ‘industry’
at all. We suggest here instead that competition within industries
is fundamental to the life of all organisations, including NFPs,
although the balance of influences on the different types of
organisations varies in the different sectors. If we define an industry
simply as a set of producers of a particular product or service,
or clusters of such products or services, then it is apparent that
NFP organisations (voluntary, educational, medical, religious,
governmental, military, etc.) are as much part of an industry as
commercial organisations.
Furthermore, it is equally apparent that both commercial and NFP
organisations provide those products and services for markets,
which we define as ‘clusters of consumers’. NFP organisations
have only recently begun calling their end-consumers ‘customers’
and many are still deeply uncomfortable with that term and the
relationship with the NFP organisation that it implies. Doctors like
to call their customers ‘patients’. Schools or universities like to
call their customers ‘pupils’ or ‘students’. National and local
governments may think of their customers as ‘the public’ or
19
‘the taxpayer’. None of these terms is neutral. All imply a certain

type of relationship between the organisation and its client group.
The concept of ‘customer’ implies an economic relationship based
on production and consumption, rather than a deferential
hierarchical one, as in ‘patient’ or ‘student’. Nonetheless, it is the
economic and managerial set of relationships that this course
addresses. Of course, economic and managerial concepts also
contain social, cultural and ethical dimensions and these too are
part of our discussions, but they are not our starting-point.
The organisation’s choice of a particular way to compete, that is,
its competitive position, determines its ability to make profits in an
industry. Here once again, and at this early stage of the course, we
would like to clarify our position on competition and profitability
as applied to NFPs. All organisations compete for resources. We
include among those resources:
l staff, especially specialist staff and managers with relevant
experience
l finance and investment capital
l locations, sites and buildings
l levels of ICT capacity and capability
l ideas, innovation and creativity
l good quality, reliable suppliers
l governmental, regulatory, community and media support and
goodwill.
These are all scarce resources for which organisations compete in
their differing ways. The quantity and quality of those resources
and the skill with which they are obtained, managed and
developed over time, in pursuit of the strategic objectives of the
organisation, will affect profitability in commercial organisations,
while for NFPs it will affect their ability to meet targets or extend
their range and quality of service provision.
In his earlier works, Porter (1980, 1985) argued that the ability of an
organisation to gain any advantage over its competition depends
on the structure of the industry within which it is placed and its
choice of competitive position within that industry. He outlines an
analytical framework, known as the Five Forces model (which you
will learn about in detail in Unit 2) to help understand the key
influences on competition in a given industry, and therefore the
factors that underpin competition in that industry. Understanding
the nature of an industry’s structure, and therefore the rules of
competition in that industry, means evaluating the industry’s
attractiveness in terms of profitability and growth, and this helps
to determine a competitive strategy to ‘cope with and, ideally to
change those rules in the organisation’s favour’ (1985, p. 4). A
defensible competitive position, therefore, depends on how well
the organisation directs its activities and resources to meet the
opportunities or challenges of its markets in a unique and
profitable way.
20
3 DEFINING STRATEGY
Porter’s idea on positioning builds on earlier ideas on strategy

proposed in the 1950s and 1960s by Ansoff (1965), Chandler (1962),
Sloan (1963) and Andrews (1971), in what was known as the
classical school of strategic management. This school argued that
profitability is the main goal of any business organisation.
Therefore, the fundamental strategic challenge of an organisation is
to position itself suitably in those markets in which profits could be
earned. The classic approach further supports a top-down approach
to strategy making, placing strong faith in senior managers’
readiness and ability to adopt profit-maximising strategies through
rational long-term planning. In this process of rational planning,
the conception of strategy is separated from its execution. Strategy
formulation becomes a process explicitly controlled by top
management and strategy implementation is a distinct phase that
rests primarily as the responsibility of middle managers.
3.2.2 Dynamic environment

The ideas of the classical school assumed that the external
environment was manageable, since changes could be anticipated
and influenced to the firm’s advantage by the rational decisions
of top management. However, the late 1970s and 1980s challenged
the relevance and applicability of the classical theorists. Classical
strategic thinking could not fully account for the rapid rise of
Japanese and other South-East Asian businesses (from sectors
as diverse as steel, consumer electronics, automobiles and
semiconductors) which was based on changing the rules of
competition in many international industries. A well-known
example of this is the impact on the global automobile
industry – and on the American ‘Big Three’ car firms in particular
(Chrysler, General Motors and Ford) – of the implementation of
what became known as ‘lean manufacturing’ techniques in the
Japanese automobile industry in the 1970s. The Japanese methods
transformed the quality/price ratios in the industry permanently
and the US automobile industry has never completely recovered
from them.
In that period, the Japanese competed mainly on the basis of
process improvements in operational efficiency, through focus on
quality, cycle time, re-engineering and teamwork. The success
of Japanese firms in these areas influenced organisations in
North America and Europe to focus on efficient operations
management as the main source of competitive advantage, and
overwhelmed strategic thinking with their focus on operational
efficiency. As you have just read in the Course Reader article,
Porter (1996) criticised this overwhelming focus on the careful
implementation of operational activities, since it had led managers
to neglect strategy. Although the Japanese focus on operational
efficiency was effective at the time, its effectiveness has gradually
been eroded with no new strategic direction to replace it. Indeed,
much of its effectiveness derived from the US companies’ inability
to restructure.
21
Among other economic and technological shifts occurring in

the 1990s that required attention at a strategic, rather than an
operational, level was the trend towards technological convergence
(i.e. integration in the development of certain technologies and in
their applications to different products and services). In chemical
and electronic organisations, computing and communications
components and consumer electronics, financial services, food,
cosmetics and pharmaceuticals, this technological convergence
had begun breaking down traditional industry structures and
boundaries. Large and historically successful organisations such as
the Japanese electronics group, Sony, the Anglo-Dutch consumer
group, Unilever, the US and French cosmetics groups, Revlon or
L’Oréal, have all had to come to terms with the changes that
technological convergence, rapid growth of information and
communication technologies (ICT), and the impact and spread of
the internet and microelectronics, have brought.
In addition to rapid and complex technological change, there
followed a wave of deregulation and privatisation undertaken in
public-sector (often state-owned) industries, involving critical
industries such as telecommunications, power and water,
healthcare and financial services. Deregulation and privatisation
spread from Europe to India, Russia, Brazil and China, with varying
degrees of success in terms of economic and political change,
and levels of service delivery. Changing international social and
consumption patterns, growing ecological sensitivities, the influence
of non-governmental organisations (NGOs) such as Greenpeace
(the environmental campaigning organisation) and the role and
impact of the World Trade Organisation on international trade,
are all features of the global economy that need to be incorporated
into contemporary strategic thinking (Prahalad, 1999).
The overall picture is that of an external environment that is
both dynamic and complex. Exchange rate volatility, dramatic
reduction in life-cycles of products and firms, reduced transaction
costs and times to market, broadened supply of information, all
speeded up and intensified competition. D’Aveni (1994) sees these
conditions as a state of ‘hypercompetition’, where market stability is
replaced by instability and constant change. It is worth noting Porter’s
(1996) comment on this argument in the Course Reader article:
In many industries, however, what some call hypercompetition is a
self-inflicted wound, not the inevitable outcome of a changing
paradigm of competition.
3.2.3 Stretch or fit?

Coming from a different angle, Hamel and Prahalad (‘Strategy as
stretch and leverage’, 1993, available in full in the Course Reader)
put forward a similar argument to Porter when they advised
managers to ‘stretch’ their strategic thinking to be more ambitious
in their targets and objectives, to yield new opportunities. Hamel
and Prahalad (1993) argued that ‘leveraging resources is as
22
3 DEFINING STRATEGY
important as allocating them’. What they meant by this concept of

‘leveraging’ is that although resource allocation across businesses
and geographic locations is a strategic task, it can be done more
creatively than in the traditional view of a ‘fit’ between existing
resources and existing opportunities. They recommended that
resources and capabilities might be used more intensively
(leveraged), so that a smaller resource base may be used to achieve
more ambitious strategic objectives (‘stretch’). They were suggesting
a different strategic vision of how to approach risk and uncertainty.
This article is one of a series of six articles published by Hamel
and Prahalad in the Harvard Business Review from the mid-1980s to
the mid-1990s. In those articles a distinct body of work has been
set out which asks why some companies redefine the industries in
which they compete, while others take the existing structure as
given. Hamel and Prahalad answer their own question about the
aspirations and objectives of companies in terms of what they call
‘managerial frames of reference’ – the assumptions and received
wisdom which ‘frame’ a company’s understanding of itself and its
industry and which drives its managers’ approach to competitive
strategy. They argue that existing frames of reference can only
deliver existing types of strategies: those that fit the existing
industry recipes about how to compete. One of the most important
ideas in this article is their idea of ‘breaking the managerial frame’.
They specifically emphasise the role of senior management in
setting ambitious targets and being creative in their internal and
external view of resources and in their strategic thinking. Their
stance on strategy is that managerial aspirations should drive
resources rather than vice versa. They argue that the long-term
health and competitiveness of an organisation depends on the
willingness of its managers ‘to challenge continually their
managerial frames’. In fact, they see competition between
organisations as managerial frame versus managerial frame,
i.e. ‘mind-set versus mindset’.
REFLECTION
Think of an example of any economic, political, social,
regulatory or technological change experienced by the sector
or industry in which you work, or with which you are most
familiar. How do you think the change affected your
organisation or a given organisation in your chosen industry?
Has it been affected by ‘hypercompetition’ or by less intense
and continuous levels of competition and change?
Managers struggle to make sense of constantly evolving industry

structures and, also therefore, of the evolving rules of competition.
How are these changes shifting the relationships between
producers, consumers, competitors, collaborators and investors?
How do you formulate and implement strategies to attempt to
23
establish and retain advantage in a dynamic context? Units 2 to 7

deal with these questions in more detail.
3.3 HOW DO STRATEGIES ARISE?
3.3.1 Deliberate and emergent strategies

Strategy is not just about positioning the organisation to meet given
opportunities but increasingly about finding ways to influence,
shape and create those opportunities. How managers design and
formulate strategies for their organisations therefore affects how
industries evolve, and how organisations react in response.
ACTIVITY 3.3
Now please read the article by Henry Mintzberg and
James Waters, ‘Of strategies, deliberate and emergent’, in the
Course Reader.
In what ways is the distinction that Mintzberg and Waters
draw between deliberate and emergent strategy important for
managers? Where does their approach fit in the history of
strategic management thought?
DISCUSSION
Mintzberg and Waters first published their article in the

Strategic Management Journal (SMJ) in 1985. It highlighted a
shift in strategic management thought away from the classical
planning school, in which strategy was regarded as the sole
domain of top managers, with middle managers doing the
implementing under their direction. It was not the first
article to depart from the orthodox linear strategic planning
model. In fact their own research had been continuing for
ten years at this point. Instead of a definition of strategy that
implied that strategy was long-term planning carried out by the
leaders of an organisation, Mintzberg and Waters defined
strategy as ‘a pattern in a stream of decisions’ and therefore
as part of a process of strategy formulation that occurs in
organisations. In particular, they highlighted the gap between
‘leadership plans and intentions’ (intended strategy) and what
organisations actually did (realised strategy). This became
known as the process school of strategy. It exposed the
limitations of the classical approach by exploring the internal
workings and processes within organisations to better
understand strategy as an organisational process that emerges
(emergent strategies) from a combination of influences within
the organisation. Mintzberg and Waters further define
strategies as either deliberate or emergent. Deliberate strategies
are those that are realised (implemented) as intended;
24
3 DEFINING STRATEGY
emergent strategies are those that are realised despite the

existence of any intended strategy, or in the absence of any
managerial or organisational intention whatsoever. Clearly,
there is no one best way of formulating and implementing
strategy.
Managers interpret messages from the external and internal
environments of their organisations and they respond to
these messages by adapting their strategies in various ways.
In this respect, strategy making corresponds more closely to
a process of designing and crafting, where strategy is a
continuous and adaptive process, and where formulation and
implementation interact continuously. That is what we mean
in this unit and in the course when we talk of the strategy
‘process’, and it is why that process is represented in
Figure 1.1 as circular, not linear.
Mintzberg and Waters develop their ideas of what total
‘deliberateness’ and total ‘emergentness’ might look like in an
organisation. In between these two extremes, they discuss the
variety of ways in which strategy-making processes can form
and evolve in different organisational settings. Indeed, you
would expect the strategy process in a large multinational,
multidivisional organisation (like Nestlé, the Swiss food
company, or Adidas or Nike, the international sportswear
groups) to follow what they call an ‘umbrella’ strategy, where
broad strategic decisions, boundaries and targets are defined
by the head offices of the respective companies. These then
provide an umbrella underneath which strategy is delegated to
their various divisions and international offices to consider and
to implement. By contrast, a small organisation, such as a
two-person design consultancy, a local grocery store or an
individual piano teacher, may easily be able to implement
deliberate, planned or entrepreneurial strategies, directly
following the owner or founder’s vision and aspirations. Key
to Mintzberg and Waters’ argument is that strategy emerges
from continuously evolving organisational processes, resulting
from the complex interactions between different individuals
and groups, with diverse interests and perceptions.
This distinction between deliberate and emergent strategies
has another very important implication. We can let Mintzberg
and Waters explain it in their own words:
In our view, the fundamental difference between deliberate
and emergent strategies is that whereas the former focuses
on direction and control – getting desired things
done – the latter opens up the notion of ‘strategic
learning’.
The concept of emergent strategy therefore opens up the
strategy process to the notion of learning: responding to
25
contexts as they evolve. It is likely that some element of

deliberateness (getting desired things done) and some element
of emergentness (responding, learning, evolving) are both
necessary to an effective strategy process in varying degrees.
3.3.2 Sources of complexity affecting strategy

formulation
Although the idea of deliberate, planned strategies that are
designed, and then implemented, is very attractive in its simplicity,
we understand that most organisations are complex. Warren (2003)
has identified three typical types of modern organisation where
the process of strategy formulation is likely to work differently:
1 The single-activity business unit – this could be a new venture,
an independent small business, or a division within a larger
organisation. Any of these might be in manufacturing or service
industries, and operate in virtual or physical forms
(or both).
2 The multibusiness firm – which holds a diverse portfolio of
different types of businesses and products, and often also
operates in different geographical markets.
3 A public-sector or a non-profit organisation – engaged in the
provision and management of public or social or voluntary
services vital to society. Note that some NFP organisations also
operate in a number of different international markets.
In modern large organisations, complexity increases with the
sheer size of the organisation and the diversity of technologies,
knowledge and skills that employees and managers need to work
effectively. Complexity is reinforced when we consider that
employees are also individuals who each bring their own personal
objectives and biases to the organisation. Løwendhal and Revang
(1998) explain that such complexity is characteristic of
organisational relationships. Employees, clients, competitors, or
other stakeholders occupy multiple roles simultaneously and tend
to shift frequently between roles and organisational identities while
interacting. There is uncertainty, therefore, both inside and outside
the organisation, so it makes sense for strategy to be at least partly
emergent and organic. But how can managers make strategic
sense of this internal complexity, alongside the external drivers
of change discussed earlier?
Sustaining desired performance levels has become difficult and
usually temporary. Any distinct business-specific knowledge or skill
is quickly outdated or bypassed by shifts in basic market or
stakeholder relationships (Argote, 1999). Successful businesses
emphasise entrepreneurship, adaptability to unstable and fast-
moving market circumstances, and competent management of fluid,
26
3 DEFINING STRATEGY
often short-lived resources and dynamic capabilities (Teece et al.,

1997). (Unit 3 discusses identifying, building and renewing resources
and capabilities in organisations.)
Balancing deliberate and emergent elements of strategy formulation
allows organisations to realise intended objectives, while also
responding to unfolding internal and external actions, constraints
and pressures. This is what Mintzberg and Waters call ‘walking
on two feet, one deliberate, the other emergent’. Brown and
Eisenhardt’s (1997) research into highly turbulent markets points to
the benefits of ‘semi-coherent’ strategic decision-making processes
that combine elements of both planning and flexibility of response
(i.e. elements of both ‘deliberateness’ and ‘emergentness’). They
describe the presence of ‘semi structure(d)’ strategic processes that
create plans, standards and responsibilities for certain activities,
while allowing freedom elsewhere. Grant (2003) also acknowledges
similar patterns of ‘planned emergence’ processes from the study of
major oil companies in turbulent environments. Furthermore, he
notes that strategy was primarily a bottom-up process – from the
business units to the corporate headquarters – and with business
managers exhibiting substantial autonomy and flexibility in strategy
making. At the same time, corporate management provided
direction by using planning systems to establish constraints and
guidelines in the form of vision and mission statements, corporate
initiatives, and performance expectations.
Furthermore, differences exist not only within organisational
contexts but also in the economic and social systems in which
organisations are embedded. Strategy formulation, therefore,
involves not just individuals and departments, divisions and
functions, but also social groups, interests and stakeholders. These
interrelationships and their impact on strategy formulation and
implementation are explored in Unit 4.
Strategy formulation and implementation is also affected by
geography. Strategic thinking in an international context is strongly
influenced by different cultural traditions and by political and
social systems that vary from one country to another. Does the
organisation adapt to the international diversity it encounters or
else find ways of implementing the same strategy wherever it
operates? Some of this international complexity in strategy
formulation is captured in this example from the German car
manufacturer BMW and its strategy for Asian market penetration.
ACTIVITY 3.4
Consider the situation faced by BMW in its further expansion
into China outlined in Box 3.1. What do you identify as the
key issues they face in their expansion into the Chinese
market?
27
BOX 3.1
BMW PREPARES FOR A SALES DRIVE IN ASIA
Fluctuating currencies and stagnant western markets have

prompted the German car firm to target the Far East.
Following the successful launch of the Mini, made in Cowley,
Oxfordshire (UK), the company is preparing to sell its new BMW
1-series, 6-series and X3 jeep. BMW hopes that new markets in
Asia will account for a growing proportion of sales of new models
and the renovated 5- and 7-series.
Its reign, say BMW watchers, will be judged on how successful it
is in conquering these new regions and reducing dependency on
the more stagnant western markets.
‘Coming up with new products is not the issue,’ says Chris Will,
an analyst at Lehman Brothers. ‘Selling them into new countries
is what counts.’
BMW had opened up a factory in China, already the company’s
third-largest market for the 7-series.
‘The purchasing power is there,’ says BMW’s chairman Helmut
Panke. ‘And not just in China but in countries like Thailand too.
Manufacturing follows the markets because we then have lower
logistics costs, and its takes away some of the risks of currency.’
Panke wants the plant in China to be making 300,000 cars
annually within three years and this will rise if demand for BMWs
in the Asian region accelerates to the firm’s forecast level of
150,000 by 2008.
Source: O’Donnell (2003)
DISCUSSION
The issues faced by BMW (e.g. fluctuating currencies and

currency risk; mature domestic markets; supply chains and
logistics costs; levels of disposable income in developing
markets) in its expansion into Asia are part of international
strategy formulation and are discussed in detail in Unit 7.
We will now go on to look in more detail at the strategy process

itself.
��
28
4 THE STRATEGY PROCESS
THE STRATEGY PROCESS
4
Section 3 suggested that there is no one best way to define, design
or implement strategy. Internal and external pressures vary from
country to country, industry to industry and from public to private,
and accordingly must be interpreted differently for different types
of organisation. However, there is a generic process of strategic
analysis, strategic choice and strategy implementation which can be
applied in all contexts (as illustrated by Figure 1.1). This section
describes the main dimensions of the strategy process, and explains
how the different units of the course develop this perspective.
4.1 WHAT IS THE STRATEGY PROCESS?

As a manager of a particular organisation, or as a student of
strategy, you should be able to:
l assess the organisation and its environment objectively (analysis)
l formulate and select a pattern of activities that maximises the

organisation’s chances for success in meeting its selected
objectives (choice)
l implement its selected pattern of activities (implementation).
The framework in Figure 1.1 presented strategy as an iterative process
through time, since all forms of strategic thinking and decision making
(from analysis through to implementation) take place in dynamic
contexts facing uncertain futures. The processes of ‘analysis’, ‘choice’
and ‘implementation’ form the basis of strategy, but they often need
to be reviewed and revisited as situations change, and assumptions
have to be revised as a result. Figure 4.1 details the broad analytical
criteria that constitute ‘analysing’, ‘choosing’ and ‘implementing’.
Environmental analysis Resources and strategic capability
Assessing stakeholder expectations
Analysing
Culture and the managing of change
Identifying options
Choosing Implementing
Evaluating options
Organisational structure
Selecting a strategy Management systems
Figure 4.1 The analytical constructs of the strategy process
29
The thinking behind the strategy process draws on five

key elements that characterise the evolution of strategic thinking
discussed in Section 3. We address each in turn.
F irst: cla rity in d efining what is a strategic issue

B820 argues a broad definition of strategy as ‘the pattern of
activities followed by an organisation in pursuit of its long-term
objectives’. The conception and execution of such a ‘pattern of
activities’ depend on the manager’s ability to determine which
internal and external issues are of strategic importance to the
organisation, and also which are not.
Strategic issues can be characterised as developments inside or
outside an organisation that are likely to have an important impact on
its ability to meet or determine its long-term purposes and objectives.
Many examples of strategic issues were given in Section 3.1.
Managers must also be able to clearly distinguish between strategic
and operational issues and the relationship between the two.
Second: strategy requires the manager to apply b oth

log ical and creative thinking and skills to the processes
of analysis, choice, and implementation of strategy.
Consider the views of Szulanski and Kruti in Box 4.1 below.
BOX 4.1
SZULANSKI AND KRUTI SPEAK OF THE DISCIPLINED
IMAGINATION
... companies learn how to make strategy by doing. In a reality

where the value of new strategies erodes rapidly, companies pay
attention to how fast and how well they are able to create new
strategies and migrate to them. Advice for strategy making
emphasises either discipline (e.g. rigorous elaborate planning) or
imagination (e.g. attempts to think outside the box). Neither
discipline nor imagination alone, however, is as effective as both
are together. ... However, although proponents of either approach
passionately advocate the virtues of their respective prescriptions,
both approaches have value, and especially so in combination. At
any given time, one approach may occupy the foreground while
the other serves as background; however, neither can fully displace
the other. The inherent limitations of either approach in isolation
perhaps suggest that both discipline and imagination are essential
components of high quality strategy-making effort ... Disciplined
imagination [however] does not guarantee that a particular
strategy will necessarily work. ... Disciplined imagination balances
exploration and exploitation by combining a process for generating
diverse options with another for evaluating them consistently, thus
discarding the bad ones and developing further the good ones.
Source: Szulanski and Kruti (2001)
30
In Section 3.2, we noted the emergence of ‘semi-coherent’ or

‘planned emergent’ approaches in recent strategy literature (Brown
and Eisenhardt, 1997; Grant, 2003), implying the need for both
logic and creativity in the processes of strategic decision making.
Strategic thinking as logical thinking emphasises the well-developed
analytical and intellectual skills of the manager to assess strategic
issues. Strategic thinking as creative thinking emphasises the
imagination and insight that managers may bring to interpreting
strategic issues and in developing their responses to them.
Where do entirely new business models come from, such as
Amazon.com’s approach to selling books or Dell Computers’
approach to assembly-only ‘manufacturing’ and online-only sales?
There is certainly a strong business logic behind each; but they are
each examples of creative thinking generating new strategic options
in established industries.
Therefore, alternative strategies are not only identified as the result
of rigorous analysis, but are also imagined. If more than one option
emerges, these cannot simply be scored and ranked to choose
the best one. Therefore, no straightforward answers exist on the
‘correct’ ways for managers to decide strategic issues. Effective
strategic thinking requires not only logic and discipline in the
application of relevant analytical frameworks, but also the creativity
of the imagination. This makes a manager’s ability to think
strategically about decisions a significant and valuable resource.
Strategic decisions often involve the simultaneous consideration of
many complex factors concerning technology, human resources,
financial investment, restructuring or the development of new
products and services, and so on. They are likely to occur as a
series of related decisions that are less extensive in scope than the
final strategic decision (Pettigrew, 1988). These minor decisions can
take place at any part of the strategy process. For example, strategy
involves deciding which information is most important, which
stakeholders are most influential and which control mechanisms
and budgets are needed to ensure the effective implementation of
the selected strategy. Eisenhardt (1999, p. 66) argues that, especially
with rapidly changing environments, ‘the ability to make fast,
widely supported, and high-quality strategic decisions on a frequent
basis ... is the fundamental dynamic capability in excellent firms’.
Third: strategy operates at different levels within

an organisation
Strategies are each essentially unique in content and execution.
Strategy can be developed by an individual or by a group or
groups, and requires the integration of multiple decisions and
actions at different points in time.
31
In particular, the strategy literature makes a fundamental distinction

Corporate strategy
on strategic issues at three different organisational levels: corporate,
business and functional levels of strategy (see Figure 4.2).
Each level of strategy focuses on a different set of issues. It is
Business strategy
therefore important that we understand what strategy means at
each of the different levels:
l Corporate strategy – seeks to define the scope of the
organisation based on the industries and markets in which it
Functional strategy
competes (Grant, 2002). Corporate-level decisions often involve
decisions relating to managing a portfolio of businesses owned
Figure 4.2 Levels of (or just controlled) by the organisation. These decisions may
strategy include investments and divestments, diversification into related
or unrelated businesses, mergers and acquisitions, and sharing
and alignment of strategic resources. An illustration of a
corporate strategy level of decision would be BMW’s decision to
expand into the Asian market (i.e. a market diversification in a
related or core business).
l Business strategy – aims at defining how the organisation
(at this level of strategy ‘the organisation’ means a single
business unit) should compete within its given industry or
market (Grant, 2002). The main focus of business unit strategy
decisions is: how should the organisation compete? Business
unit strategy is therefore the level of strategy mainly concerned
with issues of competition and competitive strategy. A firm may
compete by being oriented externally so that it adopts a certain
market positioning with respect to its customers, competitors,
suppliers and other stakeholders; or it can be oriented internally
whereby it focuses on those markets, products or services that
best suit its resource base. Using BMW once again as our
example, we would say that BMW has a competitive strategy
built around its market positioning in the luxury segment of the
automobile industry. This has determined which customer
segment it has targeted, which competitors it sees as relevant to
its selected segment and potentially able to affect its market
share (e.g. the relatively new entrance of Toyota’s luxury brand
Lexus), and so on. It also means that for BMW certain other
competitors in other segments are not especially relevant.
l Functional (internal unit) strategy – relates to the operational
or functional tasks within an individual business unit or a firm
(e.g. research and development [R&D], marketing, human
resources, new product development, finance, operations, etc.).
Each business unit needs to have its own strategies for carrying
out these operational functions, following on from the nature of
the business strategy it is pursuing. Once again, in the case of
BMW, it places particular emphasis on all functional activities
that sustain its strategic positioning as a luxury brand and that
can continue to support and justify its relatively high prices,
especially its marketing, advertising, engineering and build
quality, and its customer-support service levels.
32
This course focuses on the corporate and business level strategies

of organisations, rather than on functional or operational level
strategies. However, all three levels of strategy are important, since
effective implementation of any strategy requires sophisticated
consideration of its operational implications. Therefore, in reality,
all three levels of strategy interrelate and overlap. It is nevertheless
important that managers are absolutely clear about what the
strategic issues are at each of the different levels, since corporate
strategy, business unit (competitive) strategy and functional strategy
all address very different kinds of problems.
One final (and perhaps confusing) point that must be explained in
relation to the three levels of strategy is that although they address
very different issues, in some organisations, especially small
businesses, all three levels of strategy are likely to be carried out by
the same person or persons – i.e. the owner/manager in a small firm.
As a result, they can in practice appear to collapse together. Similarly,
for a single-unit stand-alone business, pursuing only one line of
business activity, business and corporate levels of strategy are likely
to be carried out by the same layer of managers. It is much easier to
see and understand the three levels of strategy in a large organisation,
since in large organisations each level is likely to be the responsibility
of a different manager at a different level of seniority.
In large multidivisional, multi business organisations, corporate and
business levels of strategy are very different and one of the major
tasks of corporate-level managers is the continuous review of the
performance of its individual businesses and the occasional
decision to buy or sell one or more of them to meet changed
corporate strategy priorities. For example, should Daimler-Benz of
Germany continue in all its current range of businesses, including
cars, trucks, aircraft, and so on? This can occur in exactly the same
way in an NFP if, for example, a hospital decided to get rid of its
accident and emergency department (business unit) and develop
its particular specialisms by investing the resources saved into
expanding other business units, such as its specialist heart or
cancer treatment departments.
Fourth: strateg y occurs in a dynamic context

All strategic thinking and decision making takes place in a dynamic
context. In fact, it is difficult nowadays to imagine a static context
for any organisation or an industry. Continuously evolving changes
and fluctuations in their internal and external environments
(ICT, labour costs, skill requirements, interest rates, growth or
decline in demand, new competitors, wars, key resource shortages,
and so on) are the norm for both organisations and industries.
Managers must critically and skilfully interpret and incorporate the
effects of these changes within their strategic thinking, and act to
provide effective responses.
33
Fifth: strategy is highly dependent on context

Beyond the general contextual issues of the wider business,
competitive and macro-environmental contexts as referred to above
are the underlying differences that exist at the level of the societies
and countries in which organisations are based. These social,
cultural, political or religious differences have high practical
relevance to all parts of the strategy process, affecting analysis,
formulation and choice, and implementation. Strategies that
are highly successful in Europe may become spectacular and
embarrassing failures if attempted in the Middle East, Africa or parts
of Asia. That is why HSBC, the global banking group, advertises
itself as ‘your local bank, world-wide’. It is suggesting that it
understands the needs and differences between, and within,
countries and cultures around the world and can tailor its national
market strategies accordingly.
4.2 THE ‘STRATEGY PROCESS’:

AN ORGANISING FRAMEWORK
FOR THE COURSE
This section explains the rationale,
Units
7 and 8 relevance, organisation and scope of
each unit of this course in the context
of the strategy process framework and
Pro
t
tex
of the learning outcomes of the course

ces
Con
Unit 5 Analysing
Units 2,
3 and 4
(see Section 1.1.2).
Figure 4.3 presents the strategy process
framework as a map of your learning in this
Choosing Implementing course, indicating the place of each of the
units within the framework.
Units Units
7 and 8 7 and 8
Unit 6 4.2.1 Strategy as process

versus linear strategy
Content
Throughout this unit we have used the
language of strategy as a ‘process’. As
Figure 4.3 The strategy process: an organising you can see in the figures that we use
framework for the course to illustrate our approach (especially
Figures 1.1 and 4.3), they all consist of
interconnected circles and circular arrows. This is deliberate, as
interconnectedness is a very important part of what we want you
to understand about strategy making and strategic thinking.
In the discussion following your reading of the Course Reader
Introduction ‘The development of strategic management thought’
(Segal-Horn, 2004) in Section 3 of this unit, some of the ‘classical’
or ‘planning’ approaches to strategy such as Ansoff (1965) were
considered. The ‘planning’ school of strategy often illustrate their
ideas with linear diagrams that imply two things. Firstly, that there
34
is some kind of automatic input/output relationship between the

strategic analysis carried out at the beginning and the strategy
implementation carried out at the end. Secondly, it also implies that
there is some kind of beginning, middle and end to strategic
decision making. In this course we absolutely reject both of those
implications. We want you to be clear instead that strategic decision
making and strategic thinking are continuous and iterative. Strategy
should never be something that an organisation carries out once
every three to five years and in between forgets about. We have
emphasised instead in this unit that strategy has to be developed
and implemented in a dynamic context, which necessitates that it
be continually reviewed and revisited as that context (external and
internal) changes. We also wish to emphasise that strategy has
to engage the efforts of the whole organisation, not least if
implementation is to be successful. Many excellent strategies fail at
the implementation stage precisely because the nature of strategy as
a process is not properly understood. These issues will be more
fully discussed in Section 2.1 of Unit 5.
There is, however, one way in which there is a specific starting
point in strategy, and that is the traditional emphasis on carrying
out an external environmental analysis (see Unit 2) first, before an
internal analysis (see Unit 3) of resources and capabilities. This
pattern is reflected in how we have designed the structure of this
course. One of the reasons for this is the overwhelming importance
of macro-environmental factors on the potential relevance and
suitability of any specific strategy, and especially on the continued
viability of the current strategy of any organisation.
The rest of this section will explain the overall structure of the course.
4.2.2 Analysing: performing strategic analysis

Unit 2 explores the multiple layers that
Environmental Resources and
constitute an organisation’s business analysis strategic capability
environment. In so doing, it provides tools
and techniques that will help identify and
evaluate the external influences on strategy.
Analysing
Unit 3 concentrates on how an organisation
Assessing
can compete effectively based on its stakeholder Units 2,
expectations 3 and 4
resources and capabilities in a dynamic
context. It explains how to undertake a
thorough internal analysis and resource audit Figure 4.4 Analysing
of an organisation. Unit 4 examines
stakeholder relationships; it discusses the roles and significance of
stakeholders and their influences on the nature and direction of an
organisation’s strategy.
4.2.3 Choosing: formulating strategic decisions

The process of strategic choice requires managers to identify
several potential strategic options, evaluate them and select the
most appropriate for his or her organisation and context. Unit 5
35
discusses potential strategic options available

Identifying options Unit 5 to an organisation both at the corporate and
the business unit (competitive) levels of
Evaluating options Choosing strategy. It also presents a set of tools and
techniques that can be used to evaluate
Selecting a strategy
the appropriateness and viability of any
potential given option, before selection and
Figure 4.5 Choosing implementation.
4.2.4 Implementing strategy

Implementing a strategy can often be much
Culture and the managing of change
harder than selecting the strategy in the first
place. Unit 6 explores the key organisational
Organisational structure
variables of structure, culture and systems,
Implementing
through which strategies are implemented.
Often it is contexts that are dynamic, and
Unit 6
Management systems organisations that are static and difficult to
change. Structure, culture and systems are the
Figure 4.6 Implementing levers of control and change in organisations
through which strategies and strategic change
are delivered.
4.2.5 Strategy in context

Unit 7 revisits the strategy process from an international
perspective. It addresses cross-cultural differences and their
implications for the formulation and implementation of strategy in
an international context. It discusses the strategies available to the
international manager within a multinational corporation, as well as
those organisations working with multinationals in local contexts.
It addresses strategy content, context and process across borders.
Now that your understanding of strategy is so much deeper than when
you started, Unit 8 helps you organise what you have learned from the
course into key themes and make sense of it in a more sophisticated
way. It is a guide to what is most important in strategy, and also to why
strategies go wrong. It directs you towards key issues and challenges
likely to influence strategic thinking in the years ahead.
��
36
5 SUMMARY AND CONCLUSION
SUMMARY AND
5 CONCLUSION
This unit has introduced you to the concepts of strategy and

strategic thinking. It provides debates and frameworks within which
you can think about what strategy is, and its significance and role
within an organisation. There are many ways of thinking about
strategy. We have presented a number of them here and leave you
to reflect and learn from them until you reach your own view on
what strategy means for an organisation.
We have emphasised the course’s focus on strategy as a process
occurring within a dynamic, and frequently an international,
context. We have explained the various stages of strategic analysis,
choice and implementation and the relationship between them.
We have also described the three levels at which strategy operates
and the types of issue it addresses at each level.
There is no one best way of formulating and implementing strategy
and any effective approach requires logical analysis, critical
reflection and imagination. The models, theories, concepts and
frameworks you encounter in studying this course can neither be a
source of advantage in themselves nor a substitute for the quality
of your own strategic thinking. The only way to make a difference
lies in how you use the course materials as part of a critical and
sophisticated approach to developing your own thinking about
strategy.
��
37
REFERENCES
Andrews, K.R. (1971) The Concept of Corporate Strategy,
Homewood, Ill., R.D. Irwin.
Ansoff, H.I. (1965) Corporate Strategy, New York, McGraw-Hill.
Argote, L. (1999) Organizational Learning, Boston, MA, Kluwer.
Brown, S.L. and Eisenhardt, K.M. (1997) ‘The art of continuous
change: linking complexity theory and time-based evolution in
relentlessly shifting organisations’, Administrative Science Quarterly,
vol. 28, pp. 223–44.
Chandler, A.D. (1962) Strategy and Structure, Cambridge, MA,
MIT Press.
D’Aveni, R. (1994) Hypercompetition, New York, The Free Press.
Eisenhardt, K.M (1999) ‘Strategy as strategic decision making’, Sloan
Management Review, Spring, pp. 65–72.
Grant, R.M. (2002) Contemporary Strategy Analysis: Concepts,

Techniques, Applications, 4th edn, Oxford, Blackwell.
Grant, R.M. (2003) ‘Strategic planning in a turbulent environment:
evidence from the oil majors’, Strategic Management Journal,
vol. 24, pp. 491–517.
Hamel, G. and Prahalad C.K. (1993) ‘Strategy as stretch and
leverage’, Harvard Business Review, March–April.
Henderson, B.D. (1984) The Logic of Business Strategy, Cambridge,
MA, Ballinger.
Johnson, G. and Scholes, K. (1993) Exploring Corporate Strategy,
3rd edn, Englewood Cliffs, NJ, Prentice-Hall.
Kim, H. and Wang, A. (2004) ‘TV’s Mr Big’, Fortune, 9 February.
Løwendhal, B. and Revang, Ø. (1998) ‘Challenges to existing
strategy theory in a postindustrial society’, Strategic Management
Journal, vol. 19, pp. 755–73.
Mintzberg, H. and Waters, J. (1985), ‘Of strategies, deliberate and
emergent’, Strategic Management Journal, vol. 6, pp. 257–72.
O’Donnell, J. (2003) ‘Business section’, The Sunday Times,
19 October, p. 10.
Pettigrew, A.M. (1988) The Management of Strategic Change,
Oxford, Blackwell.
Porter, M.E. (1980) Competitive Strategy, New York, The Free Press.
Porter, M.E. (1985) Competitive Advantage, New York, The Free Press.
Porter, M.E. (1996) ‘What is strategy?’, Harvard Business Review,
November–December, pp. 61–78.
38
REFERENCES
Prahalad, C.K. (1999) ‘Changes in the competitive battlefield’,

FT Mastering Strategy, October.
Szulanski, G. and Kruti, A. (2001) ‘Learning to make strategy:
balancing discipline and imagination’, Long Range Planning,
vol. 34, pp. 537–56.
Segal-Horn, S. (2004) The Strategy Reader, 2nd edn, Oxford,
Blackwell.
Sloan, A.P. (1963) My Years with General Motors, London,
Sedgwick and Jackson.
Teece, D.A., Pisano, G. and Shuen, A. (1997) ‘Dynamic capabilities
and strategic management’, Strategic Management Journal, vol. 18,
pp. 509–33.
Vodafone website: http://www.vodafone.com/assets/en/files/
annual report2003v4.pdf [accessed 31 May 2004].
Warren, K. (2003) Competitive Strategy Dynamics, Chichester,
Wiley.
39
ACKNOWLEDGEMENTS
Grateful acknowledgement is made to the following source for

permission to reproduce material within this book:
Box 2.2: Kim and Wang ‘TV’s Mr Big’, Fortune, 9 February 2004.
Time Inc.
Every effort has been made to contact copyright owners. If any

have been inadvertently overlooked, the publishers will be pleased
to make the necessary arrangements at the first opportunity.
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ISBN 978 1 8487 3423 4

1.1 The course 5

1.2 Introduction to strategy 8

1.3 Learning outcomes of this unit 8

2 The importance of strategy 9

3.1 The development of strategic management thought 15

3.2 What is strategy? 17

3.3 How do strategies arise? 24

4 The strategy process 29

4.1 What is the strategy process? 29

4.2 The ‘strategy process’: an organising framework

for the course 34

5 Summary and conclusion 37

1.1.1 The course content

for success (choose)

l implement the selected pattern of

search for potential sources of competitive advantage, and the

In Unit 2, the different factors affecting how organisations compete

1.1.2 Learning outcomes of the course

l evaluate and apply these concepts, theoretical ideas and

1.2 INTRODUCTION TO STRATEGY

1.3 LEARNING OUTCOMES OF THIS

Why does an organisation need strategy? The essence of strategy

Vodafone Group Plc established as Vodafone in 1985, when its

Value Added and Data services offered voicemail, short message

TCL: CHINA’S TV DRAGON

Li Dongsheng, chairman of TCL, one of China’s leading consumer

unknown domestic organisations like Toyota and Samsung became

l Compared to Vodafone, TCL had a modest start, but the

services Vodafone could provide. Vodafone also increased

3.1 THE DEVELOPMENT OF STRATEGIC

There are a number of stated or implied definitions of strategy

deliberately chosen direction and prevents it drifting in

l How are we to build and manage complex resource

All organisations, of whatever type, are located within an external

3.2 WHAT IS STRATEGY?

In his article, Porter stresses the necessity of distinguishing

Why is it important for an organisation to carefully define and

3.2.1 Competitive strategy in commercial and

‘the taxpayer’. None of these terms is neutral. All imply a certain

Porter’s idea on positioning builds on earlier ideas on strategy

3.2.2 Dynamic environment

Among other economic and technological shifts occurring in

3.2.3 Stretch or fit?

important as allocating them’. What they meant by this concept of

Managers struggle to make sense of constantly evolving industry

establish and retain advantage in a dynamic context? Units 2 to 7

3.3 HOW DO STRATEGIES ARISE?

3.3.1 Deliberate and emergent strategies

Mintzberg and Waters first published their article in the

emergent strategies are those that are realised despite the

contexts as they evolve. It is likely that some element of

3.3.2 Sources of complexity affecting strategy

often short-lived resources and dynamic capabilities (Teece et al.,

BMW PREPARES FOR A SALES DRIVE IN ASIA