Strategy- Definition, components and benefits

In This Video we are going to develop an understanding about what is a

strategy, what is the nature of strategy and what are its components and
benefits.
There is considerable confusion in management literature regarding the various
terms used in the context of Strategy. A recent survey by the American
Management Association revealed that respondents found it difficult to define
policy, and differentiate between strategy, policy and objectives. Strategy, policy
and objectives include a range of statements from the “broad” and “important” to
“narrow” and “unimportant”. Policies get merged into procedures and Strategies
get confused with tactics.
This can be illustrated by the following example. Suppose a company decides upon
a sales growth of 35 per cent and desires to achieve this by acquiring other
companies, instead of introducing new products. Acquisition in this case can be
considered as a strategy chosen by the company. The company will then have to
decide on the size of the firm to be acquired. If it decides on acquiring a small
company, this becomes the objective.
Originally, the word strategy has been derived from Greek ‘Strategos’, which
means generalship. The word strategy, therefore, means the art of the general.
When the term strategy is used in military sense, it refers to action that can be
taken in the light of action taken by opposite party. According to Oxford
Dictionary, ‘military strategy is the art of so moving or disposing the instruments
of warfare(troops, ships, aircrafts, missiles, etc.) as to impose upon the enemy, the
place, time and conditions for fighting by oneself. Strategy ends, or yields to
tactics when actual contact with enemy is made’.
In management, the concept of strategy is taken in slightly different form as
compared to its usage in military form; it is taken more broadly. However, in this
form, various experts do not agree about the precise scope of strategy. Lack of
unanimity has resulted into two broad categories of definitions: strategy as action
inclusive of objective setting and strategy as action exclusive of objective setting.
One of the earliest contributors to this young subject was Alfred D Chandler.
Chandler made a comprehensive analysis of interrelationships among environment,
strategy, and organizational structure. He analyzed the history of organizational
change in 70 manufacturing firms in the US. While doing so, Chandler defined
strategy as: “The determination of the basic long-term goals and objectives of an
enterprise and the adoption of the courses of action and the allocation of resources
necessary for carrying out these goals.” Note that Chandler refers to three aspects:
1. Determination of basic long-term goals and objectives,
2. Adoption of courses of action to achieve these objectives, and
3. Allocation of resources necessary for adopting the courses of action.
Prof. Kenneth Andrews belongs to the group of professors at Harvard Business
School who were responsible for developing the subject of business policy and its
dissemination through the case study method. Andrew defines strategy as: “The
pattern of objectives, purpose, goals, and the major policies and plans for achieving
these goals stated in such a way so as to define what business the company is in or
is to be and the kind of company it is or is to be”. This definition refers to the
‘business definition’, which is a way of stating the current and desired future
position of company, and the objectives, purposes, goals, major policies and plans
required to take the company from where it is to where it wants to be.
Professor Igor Ansoff is a well-known authority in the field of strategic
management and has been a prolific writer for the last three decades. In one of his
earlier books, Corporate Strategy he explained the concept of strategy as: “the
common thread among the organizations, activities and product markets, that
defines the essential nature of business that the organization was or planned to be
in future”. Ansoff has stressed on the commonality of approach that exists in
diverse organizational activities including the products and markets that define the
current and planned nature of business.
Another well-known author in the area of strategic management was Prof. William
Glueck, who was a Distinguished Professor of Management at the University of
Georgia till his death in 1980. He defined strategy precisely as: “A unified,
comprehensive and integrated plan designed to assure that the basic objectives of
the enterprise are achieved”. The three adjectives, which Glueck has used to define
a plan, make the definition quite adequate. ‘Unified’ means that the plan joins all
the parts of an enterprise together; ‘comprehensive’ means it covers all the major
aspects of the enterprise, and ‘integrated’ means that all parts of the plan are
compatible with each other.
Mintzberg of McGill University is a noted management thinker and prolific writer
on strategy. He advocates the idea that strategies are not always the outcome of
rational planning. They can emerge from what an organization does without any
formal plan. He defines strategy as: “a pattern in a stream of decisions and
actions”. Mintzberg distinguishes between intended strategies and emergent
strategies. Intended strategies refer to the plans that managers develop, while
emergent strategies are the actions that actually take place over a period of time. In
this manner, an organization may start with a deliberate design of strategy and end
up with another form of strategy that is actually realized.
Michael Porter of the Harvard Business School has made invaluable contributions
to the development of the concept of strategy. His ideas on competitive advantage,
the five-forces model, generic strategies, and value chain are quite popular. He
opines that the core of general management is strategy, which he elaborates as:
“developing and communicating the company’s unique position, making trade-
offs, and forging fit among activities”.
You should note that strategy is:
1. A plan or course of action or a set of decision rules forming a pattern or
creating a common thread,
2. The pattern or common thread related to the organization’s activities which
are derived from its policies, objectives and goals,
3. Related to pursuing those activities, which move an organization from its
current position to a desired future state.
Strategy has four components.
1. Firstly, strategy should include a clear set of long term goals.
2. Second component is that it should define the scope of the firm i.e. the types
of products the firm will serve etc.
3. Thirdly, a strategy should have a clear statement of what competitive
advantage it will achieve and sustain.
4. Finally, the strategy must represent the firms’ internal context that will allow
it to achieve a competitive advantage in the environment in which it has
chosen to compete.
Hence to summarise - The concept of strategy in business has been borrowed
from military science where it implies out- maneuvering the opponent. The term
strategy began to be used in business with increase in competition and complexity
of business operations. A strategy is an administrative course of action designed to
achieve success in the face of difficulties. It is a plan for meeting challenges posed
by the activities of competitors and environmental forces. Strategy is the complex
plan for bringing the organization from a given state to a desired position in a
future period of time. For example, if management anticipates price-cut by
competitors, it may decide upon a strategy of launching an advertising campaign to
educate the customers and to convince them of the superiority of its products.
Now let us understand the benefits of strategy
1. Strategy determines the direction in which the organization is going in
relation to its environment thereby helping organisations to decide which
human and physical resources will be deployed for achieving organizational
goals in the face of environmental pressure and constraints.
2. Strategy relates an organization to its external environment. Strategic
decisions are primarily concerned with expected trends in the market,
changes in government policy, technological developments etc.
3. Strategy is an interpretative plan formulated to give meaning to other plans
in the light of specific situations.
4. It provides an understanding of how the organization plans to compete
thereby integrating the efforts of all in the organisation.