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For the exclusive use of J. Trbakovic, 2016.

UV4315
January 11, 2010

WHAT IS STRATEGIC MANAGEMENT?

Corporate strategy is the pattern of decisions in a company that determines and


reveals its objectives, purposes, or goals, produces the principal policies and
plans for achieving those goals, and defines the range of business the company is
to pursue, the kind of economic and human organization it is or intends to be, and
the nature of the economic and noneconomic contribution it intends to make to its
shareholders, employees, customers, and communities.
Kenneth Andrews1

All the classic definitions of strategy, of which this is one, highlight its complex nature.2
Strategic management encompasses several different sets of considerations whose relative
emphasis by business strategists, consultants, and academic researchers has changed over time,
as ideas have evolved about the application of competitive thinking to the collective enterprise of
value creation.3

Through case discussion, we will highlight several of these considerations, ultimately


focusing on the use of corporate and business strategy to create value, which will be one of your
primary roles as a manager and leader.

1
Kenneth R. Andrews, The Concept of Corporate Strategy (New York: Dow Jones-Irwin, 1971).
2
For examples of foundational work in strategic management, see Andrews; Michael E. Porter, Competitive
Strategy (New York: The Free Press, 1980); H. Igor Ansoff, Corporate Strategy (Columbus, OH: McGraw-Hill,
1965) and Strategic Management (New York: Macmillan, 1979); and Alfred D. Chandler, Strategy and Structure
(Cambridge, MA: MIT Press, 1962).
3
For a discussion of the evolution of the central ideas in business strategy, see Pankaj Ghemawat, Competition
and Business Strategy in Historical Perspective, Business History Review 76 (Spring 2002): 3774. For an
explanation of the different schools of thought in strategy, see also Henry Mintzberg and Joseph Lampel,
Reflecting on the Strategy Process, MIT Sloan Management Review (Spring 1999): 2130.

This note was prepared by Ming-Jer Chen, Leslie E. Grayson Professor of Business Administration; Gregory B.
Fairchild, Associate Professor of Business Administration; R. Edward Freeman, Elis & Signe Olsson Professor of
Business Administration; Jared D. Harris, Assistant Professor of Business Administration; and S. Venkataraman,
MasterCard Professor of Business Administration, with additional editing and revision by Jenny Mead, Senior
Ethics Research Associate. Copyright 2009 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission
of the Darden School Foundation.

This document is authorized for use only by Jasmina Trbakovic in Management and Leadership Strategy-1-1-1-1 taught by See course schedule, Golden Gate University from August 2016 to
December 2016.
For the exclusive use of J. Trbakovic, 2016.

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What does such a role involve? What does strategy mean in a business setting?

First, strategy is an organizing process that involves both formulation and


implementation. Strategic management cannot be conceived as mere operational effectiveness
alone, nor as just armchair theorizing and strategic planning; both are important aspects of
strategy, and neither is a sufficient conception of strategic management without the other.4
Strategic management is dynamic, involving both content and process, planning and action.
Moreover, strategy can be emergent and is often the realization of both intentional strategy
formulation and, as the organization acts on those plans, tactical responses to the unexpected.

Second, strategic management involves considerations and constraints that originate both
inside and outside the firm. Managers must not only be clear about both the firms distinguishing
features and its organizational objectives, but also be able to marshal its resources and leverage
its capabilities to achieve those objectives. Who are we? How do we aim to create value? What
capabilities do we need to possess in the future? How will we develop them?

A variety of external forcestechnological, economic, and competitivewill also affect


the firms strategy, including the increased global reach of firms, the multinational distribution of
labor pools and supply chains, and the worldwide interest and influence of stakeholders of all
types. Moreover, in todays world, the speed and ease of access to information about corporate
behavior greatly accentuates the impact of such forces. As such, strategic management requires
clear thinking about the economic, technological, and societal environment in which the
organization operates and an acute consideration of the activities and capabilities of ones
competitors.

Third, strategic management is essentially an integrative exercise. The functional areas of


finance, marketing, accounting, operations, and human resources often apply specific paradigms
to specific business problems and considerations, usefully setting aside complexity in favor of a
sharp focus on various disciplinary considerations. In contrast, strategy is about bringing all the
underlying values of these disciplines back together. In practice, business managers do not
typically encounter challenges as isolated, atomistic problems with narrow disciplinary
implications; rather, they navigate business issues through a whole range of complex, cross-
disciplinary considerations.

Strategic management is also integrative, as Andrews suggests, insofar as it enables value


creation for all stakeholder groupsfinanciers, employees, customers, suppliers, and
communitiesand not just one particular stakeholder. Viewed through the integrative lens of

4
Regarding the former, see Michael E. Porter, What is Strategy? Harvard Business Review,
November/December 1996, 6178; for the latter, see Gary Hamel and C. K. Prahalad, Strategic Intent, Harvard
Business Review, May/June 1989, 6376, or Henry Mintzberg and Alexandra McHugh, Strategy Formulation in an
Adhocracy, Administrative Science Quarterly, June 1985, 16097.

This document is authorized for use only by Jasmina Trbakovic in Management and Leadership Strategy-1-1-1-1 taught by See course schedule, Golden Gate University from August 2016 to
December 2016.
For the exclusive use of J. Trbakovic, 2016.

-3- UV4315

strategy, commonly invoked axioms such as maximizing shareholder returns can be useful to
the extent that they imply value creation for financiers by way of creating value for key
stakeholdersthat is, creating goods customers want, work environments that energize
employee contributions, and so on. On the other hand, if creating value for shareholders is
navely deemed unrelated to creating value for customers or employees or communities, then
using maximizing shareholder returns as a firms formal objective will provide little strategic
direction.5 Strategic management involves aligning stakeholder interests, putting these
considerations together so as to create value in an integrative and sustainable way.

However, tradeoffs must often be made, and a strategist can face difficult choices; clear
thinking and sound judgment about creating long-lasting value, therefore, require an integrative
enterprise perspective. Analytical frameworks and tools grounded in both theory and practice can
help, but any device used to analyze strategic problems will prove insightful in some ways, but
blunt in others; hence, a strategists toolkit contains many tools. The most difficult strategic
tradeoffs are often more about temporal concerns than any supposed conflict among stakeholder
interests; strategic long-term investments almost always decrease short-term performance. In
addition, strategy cascades through an organization; what constitutes strategic management at
one level may be merely tactical at a higher one.

Understanding strategic management is challenging but rewarding. Effective strategy is


integral to exceptional business leadership.

5
In fact, such objectives can engender unintended problems. See Sumantra Ghoshal, Bad Management
Theories are Destroying Good Management Practices, Academy of Management Learning & Education 4, no. 1
(2005): 7591; and Fabrizio Ferraro, Jeff Pfeffer, and Robert Sutton, Economics Language and Assumptions: How
Theories Can Become Self-Fulfilling, Academy of Management Review 30, no. 1 (2005): 824.

This document is authorized for use only by Jasmina Trbakovic in Management and Leadership Strategy-1-1-1-1 taught by See course schedule, Golden Gate University from August 2016 to
December 2016.