2 - The Concept of Strategy

THE CONCEPT OF STRATEGY
AGENDA
 The definition of strategy
 A brief history of strategy
 Value for whom: the shareholder approach vs. the stakeholder approach
 Strategic fit
26
REVIEW:VALUE FOR WHOM?
A firm achieves a competitive advantage when it creates more economic value than competitors by engaging in
a strategy that is difficult or impossible for others to duplicate.
Whom the value should be distributed to?
The shareholder approach The stakeholder approach
27
Source: Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. 2013. The Management of Strategy: Concepts and Cases. 10th Edition. Cengage Learning.
A BRIEF SUMMARY: WHY EMPHASIZING SHAREHOLDER INTERESTS?
• The shareholders initiate the firm. Without shareholders, the firm cannot exist in a legal sense.
• Shareholders’ interests could be harmed by managers who have more information and whose
interests are not aligned with the shareholders. Hence, firms (especially powerful managers who want
to demonstrate their stewardship commitment) emphasize the maximization of shareholder value.
28
THE STAKEHOLDER APPROACH
Capital market stakeholders:
The definition of stakeholders:  Shareholders
 Major suppliers of capital (e.g., banks)
Stakeholders are people who are affected by a
firm’s performance and who have claims on its Product market stakeholders:
performance.  Customers
 Suppliers
 Host communities
 Unions
Organizational stakeholders:
 Employees
29
 Managers
Source: Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. 2013. The Management of Strategy: Concepts and Cases. 10th Edition. Cengage Learning.
EXAMPLE: GOOGLE
• Important stakeholders: Users
“Focus on the user and all else will follow.”

• Important stakeholders: Employees
30
EXAMPLE: GOOGLE
• Important stakeholders: Communities
 Use renewable energy (wind and solar) in 2017
 Cooperating with International Rescue Committee, NetHope, United Nations

High Commissioner for Refugees and Libraries Without Borders, to assist more
than 800,000 refugees in getting access to the Internet
 ...
31
Source: Google website

THE STAKEHOLDER APPROACH
The stakeholder approach: Firms should balance different and often conflicting interests of stakeholders.
32
Source: Grant, R. M. 2016. Contemporary Strategy Analysis: Text and Cases. 9th Edition. Chichester, UK: Wiley.
EXAMPLE: BUSINESS ROUNDTABLE
Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include
language on the purpose of a corporation. Each version of that document issued since 1997 has
stated that corporations exist principally to serve their shareholders. It has become clear that
this language on corporate purpose does not accurately describe the ways in which we and our fellow
CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are
inseparable.
33
Source: https://opportunity.businessroundtable.org/ourcommitment/
EXAMPLE: BUSINESS ROUNDTABLE
 Delivering value to our customers. We will further the tradition of American companies leading the
way in meeting or exceeding customer expectations.
 Investing in our employees. This starts with compensating them fairly and providing important
benefits. It also includes supporting them through training and education that help develop new skills for
a rapidly changing world. We foster diversity and inclusion, dignity and respect.
 Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the
other companies, large and small, that help us meet our missions.
 Supporting the communities in which we work. We respect the people in our communities and
protect the environment by embracing sustainable practices across our businesses.
 Generating long-term value for shareholders, who provide the capital that allows companies to
invest, grow and innovate. We are committed to transparency and effective engagement with
34
shareholders.
Source: https://opportunity.businessroundtable.org/ourcommitment/
WHICH APPROACH IS BETTER?
Maximizing shareholder value or balancing the interests of diverse stakeholders?
35
PROBLEMS OF THE SHAREHOLDER APPROACH
 Short-termism
 Harm other stakeholders’ legitimate interests
36
EXAMPLE: ROYAL BANK OF SCOTLAND
When Royal Bank of Scotland was preparing to sell a package of US subprime mortgages in October 2007,
staff were keen to reassure investors about the quality of the loans and the thoroughness of its due diligence.
However, inside the bank, people were worried…
• The US chief credit officer: “[it were] like quasi organized crime” and the loans were “total f***ing garbage”
• Transcripts of internal discussions showed staff joking about “destroying” the US housing market, and the
“redistribut[ing] of wealth to Wall Street”.
• When executives asked for better due diligence, one senior banker said “Oh, God. Does anyone want to
make money around here any more?”
In 2018, the US Department of Justice and RBS reached an agreement on a $4.9 billion fine for the bank’s
behavior between 2005 and 2008.
RBS’s shareholders were angry about the settlement. One of them said it was galling that the US was
demanding almost $5 billion from a bank that was still controlled by the UK government after being bailed
out in 2008. 37
Source: http://www.ftchinese.com/story/001079013?full=y&ccode=2G172001&archive
PROBLEMS OF THE STAKEHOLDER APPROACH
While the concept of the firm operating in the interest of all their stakeholders is inherently appealing,
in practice the stakeholder approach encounters at least two serious difficulties:
 It is practically impossible to measure performance. In principle, pursuing stakeholder interests

means maximizing the value created for every stakeholder. In practice, managers have to (1)
specify the goals of each stakeholder group; (2) establish tradeoffs among them.
 Managers may still take advantage of other stakeholders. With principals who are even more
diffused, managers would have more opportunities to play politics and substitute their own
interests for those of stakeholders.
38
EXAMPLE: GM AND UAW
The longest auto workers’ strike in 50 years in the US from September to October in 2019:
What the workers won:

- Pay raises
- Factory investment and new job opportunities
Who lost:
- GM’s loss up to $4 billion for 2019
- Widespread layoffs at auto suppliers and GM’s
operations in Canada and Mexico
39
Source: https://www.cnbc.com/2019/10/29/uaw-strike-cost-gm-about-3point8-billion-for-2019-substantially-higher-than-estimated.html
EXAMPLE: JOHNSON & JOHNSON
40
Source: https://www.jnj.com/credo/
Our Credo
We believe our first responsibility is to the patients, doctors and nurses, to mothers and
fathers and all others who use our products and services. In meeting their needs everything we do
must be of high quality. We must constantly strive to provide value, reduce our costs and maintain
reasonable prices. Customers' orders must be serviced promptly and accurately. Our business partners
must have an opportunity to make a fair profit.
41
We are responsible to our employees who work with us throughout the world. We must provide
an inclusive work environment where each person must be considered as an individual. We must respect
their diversity and dignity and recognize their merit. They must have a sense of security, fulfillment and
purpose in their jobs. Compensation must be fair and adequate and working conditions clean, orderly and
safe. We must support the health and well-being of our employees and help them fulfill their family and
other personal responsibilities. Employees must feel free to make suggestions and complaints. There must
be equal opportunity for employment, development and advancement for those qualified. We must provide
highly capable leaders and their actions must be just and ethical.
42
We are responsible to the communities in which we live and work and to the world
community as well. We must help people be healthier by supporting better access and care in more
places around the world. We must be good citizens — support good works and charities, better health and
education, and bear our fair share of taxes. We must maintain in good order the property we are privileged
to use, protecting the environment and natural resources.
43
Our final responsibility is to our stockholders. Business must make a sound profit. We must
experiment with new ideas. Research must be carried on, innovative programs developed, investments
made for the future and mistakes paid for. New equipment must be purchased, new facilities provided and
new products launched. Reserves must be created to provide for adverse times. When we operate
according to these principles, the stockholders should realize a fair return.
44
EXAMPLE: ALIBABA GROUP
45
Source: https://www.alibabagroup.com/en/about/culture
THE TREND SEEMS INEVITABLE, BUT WHY?
Why do more and more firms make claims that are consistent with the stakeholder approach?
46
THE TREND SEEMS INEVITABLE, BUT WHY?
What are the most scarce resources in our age?
Who owns the most scarce resources in our age?
47
THEN HOW DO FIRMS TACKLE THE DIFFICULTIES ENCOUNTERED
BY THE STAKEHOLDER APPROACH?
 Give priority
 Develop a feasible value allocation mechanism
48
EXAMPLE: HUAWEI
Employees (including managers) are the essential driver of the firm’s sustainable development. Hence,
value distribution should prioritize employees over shareholders. The firm should prevent shareholders
from greed and short-termism.
Values to employees : Values to shareholders = 3:1
49
Source: 田涛。2018。我花了20年研究华为。虎嗅网。
RECONCILE THE TWO: MAXIMIZING PROFITS OVER THE LONG
TERM
We need to set a primary goal for our strategy analysis:
Maximize the value of the enterprise through seeking to maximize long-term profits
1. Long-term profits benefit shareholders in the long run.
2. Long-term profits facilitate long-term survival of the firm, which is welcome by all stakeholders, who
would appropriate value from the firm. Long-term profits requires loyalty from employees, trusting
relationships with suppliers and customers, and support from governments and communities.
50
CORPORATE GOVERNANCE: HOW TO PROTECT SHAREHOLDERS’
LEGITIMATE INTERESTS?
The board of directors:
a group of individuals elected by the shareholders whose primary responsibility is to act in the
shareholders’ interests by formally monitoring and controlling the firm’s top-level managers.
Insiders
The firm’s CEO and other top-level managers
Related outsiders
Individuals not involved with the firm’s day-to-day operations, but who have a relationship with
the company
Outsiders
Individuals who are independent of the firm in terms of day-to-day operations and other
51
relationships
Source: Hitt et al. 2017. Strategic Management: Competitiveness & Globalization. Concepts and Cases. 12th Edition. Cengage Learning.
CORPORATE SOCIAL RESPONSIBILITY
Firm as property Firm as social entity

• Firm as a set of • Firm as a community
assets owned by of individuals
the shareholders sustained and
• Management’s sole The middle ground: a pragmatic approach supported by its social,
responsibility is to • Business enterprises should remain committed political economic,
operate in the to their business purpose and the generation of and natural
interests of profit, while emphasizing the intersection of environment
shareholders commercial and social interests. • Management should
• Shared value: creating economic value in a way have broad obligations
that also creates value for society
52
Source: Grant, R. M. 2022. Contemporary Strategy Analysis. 11th Edition. Chichester, UK: Wiley.
EXAMPLE: UNILEVER’S SUSTAINABLE LIVING PLAN
Ten years’ achievements (2010-2020):

• Reaching 1.3 billion people through our health and hygiene programs.
• Reducing the total waste footprint per consumer use of our products by
32%, and achieving zero waste to landfill across all our factories.
• Reducing greenhouse gas emissions from our own manufacturing by 65%,
and achieving 100% renewable grid electricity across our sites.
• Reducing sugar across all our sweetened tea-based beverages by 23%, and
56% of our foods portfolio now meets recognized High Nutrition
Standards.
• Enabling 2.34 million women to access initiatives aiming to promote their
safety, develop their skills or expand their opportunities, we've moved
towards a gender balanced workplace in which 51% of management roles
are held by women.
53
Source: https://www.unilever.com/news/press-and-media/press-releases/2020/unilever-celebrates-10-years-of-the-sustainable-living-plan/
EXAMPLE: UNILEVER’S SUSTAINABLE LIVING PLAN
According to Paul Polman, the former CEO of Unilever, the benefits of this
CSR program for Unilever include:
• Improved access to raw materials
• Greater employee commitment
• A stronger drive toward innovation throughout the company
• Greatly increased numbers of applications for jobs at Unilever
• Improvement in efficiency in Unilever plants and throughout its supply
chain
However, the program has done little to boost Unilever’s commercial and financial performance. Its leading
shareholders wondered whether senior executives’ commitment to combatting climate change and world
poverty was distracting them from the more mundane tasks of selling margarine and laundry detergent.
54
Source: https://www.unilever.com/news/press-and-media/press-releases/2020/unilever-celebrates-10-years-of-the-sustainable-living-plan/
AGENDA
 The definition of strategy
 A brief history of strategy
 Value for whom: the shareholder approach vs. the stakeholder approach
 Strategic fit
55
REVIEW: THE DEFINITION OF STRATEGY
A strategy is an integrated series of commitments and actions that provide a roadmap by which an
organization maximizes its internal resources and external positioning to gain competitive advantage.
Consistency is important for strategy!
56
CONSISTENCY (ALSO KNOWN AS STRATEGIC FIT)
1. A firm’s strategy should be consistent with its external environment.

2. A firm’s strategy should be consistent with its internal resources.
3. A firm’s strategy should achieve internal consistency among its commitments and actions.
57
CASE: QUEEN ELIZABETH II AND THE BRITISH ROYAL FAMILY
Queen Elizabeth II’s personal net worth: $500 million, not

including the $10 billion worth of palaces and other real estate
owned by the nation but used by her and her family
58
59
Source: http://www.washingtonexaminer.com/photos-queen-elizabeth-ii-meeting-with-every-us-president-since-she-began-her-reign/article/2614071
The wedding of Prince William and Catherine Middleton took

place on 29 April, 2011 at Westminster Abbey in London.
Please analyze whether there was strategic fit in the strategy
of the British royal family.
1. What do you think was the overall goal of the British
royal family in Queen Elizabeth’s age?
2. How do you describe the external environment of Queen
Elizabeth II and her royal family in the 21st century?
3. What internal resources did they have?
4. What do you think was their overall strategy?
5. Was this marriage consistent with the external 60
environment, internal resources, and the overall strategy?

1. What do you think was the overall goal of the British royal family in Queen Elizabeth’s age?
61
2. How do you describe the external environment of Queen Elizabeth II and her royal family?
62
3. What internal resources did they have?
63
4. What do you think was their overall strategy?
“acts as a focus for national identity, unity and

pride; gives a sense of stability and continuity;
officially recognizes success and excellence; and
supports the ideal of voluntary service”
64
Overall goal:
• Perpetuate the family’s social status and wealth
External environment: Internal resources:

Global:
• Hereditary monarchies not popular anymore; in favor of • Unique lineage, rituals, history
equality; curiosity on royal life… • Social network in the upper class
UK: • Wealth
• Economic recession; politicians losing trust; desire of • Mystery
cultural belonging… • …
Overall strategy:
• Win the support of the British public

• Become the cultural symbol of the country 65
5. Was this marriage consistent with the external environment, internal resources, and the overall
strategy?
66
Consistency: key commitments and actions in strategy

Public relation
strategy
Public service
strategy
International
relation strategy
Political strategy
Family strategy 67
Public relation strategy
68
Public service strategy
69
Source: https://www.theguardian.com/voluntary-sector-network/2012/jun/11/queen-charitable-support
Source: https://www.royal.uk/charities-and-patronages-1
Source: https://qef.org.uk/
International relation strategy
She has made multiple visits to each of the 54 Commonwealth nations, including 26 to Canada and 16 to Australia.
70
Source: Wikipedia
Political strategy
 Political neutrality
 Positioning herself above the political fray
71
Source: http://www.telegraph.co.uk/news/picturegalleries/royalty/8507797/Long-to-reign-over-us-Queen-Elizabeth-II-in-pictures.html?image=24
Family strategy
?
72
The Queen’s strategy is risky!
73
The Queen’s paradox: Conformity and Distinctiveness
Conforming too much to the Being too distinctive as a royal

popular norms of the general family: conservative, using old
public: e.g. divorce, business languages, marrying within the
operations – losing noble class – losing empathy
distinctiveness as the royal from the public
family
74
SWOT ANALYSIS
External analysis
Strategy Strategy
formulation implementation
Internal
analysis
Strength Weakness
Internal
External Opportunity Threat

75
SWOT ANALYSIS
Strength Weakness
Internal
External Opportunity Threat
Any critique on SWOT?
76
STRATEGY TOOLS AND FRAMEWORKS
SWOT is one of the simplest tools/frameworks in strategy analysis.
Analytical tools/frameworks help you find a structure to

collect information and integrate thoughts on complex
problems.
Strategy tools/frameworks are like maps:
• Ignore, reduce, and simplify details but still provide

useful information to help you find directions
• Offer a way to comprehend reality, but do not

pretend to be “real”
77
Source: Puranam, P., Vanneste, B. Corporate strategy: Tools for analysis and decision-making.
WHAT STRATEGY ANALYSIS CAN AND CANNOT DO
Cannot do Can do
 Generate solution to  Help us understand the
problems issues: allow us to identify,
classify, and understand the
 Offer algorithms or principal factors relevant to
formulae that tell us the strategic decisions
optimal strategy to adopt
 Improve our flexibility
78
WRAP-UP
 Strategy is a set of commitments and actions. The key elements in the definition of strategy:
 Actions or actions to be taken in the future
 Internal resources
 External environment
 Value (profit)
 Competitive
 Integrated
 The competing shareholder approach and stakeholder approach might be reconciled by pursuing
long-term profit.The change from shareholder approach to stakeholder approach reflects the
change in what are the most scarce resources.
 A key feature of a good strategy: strategic fit (or, consistency)
 A firm’s strategy should be consistent with its external environment.
 A firm’s strategy should be consistent with its internal resources.
79
 A firm’s strategy should achieve internal consistency among its commitments and actions.
ASSIGNMENT
Pre-class reading:
 Apple Inc. in 2015. Harvard Business School. 9-715-456. [Read only Page 1 – Page 6 (i.e., before
“The Macintosh and Apple’s ‘Digital Hub’ Strategy”]
Answer the following question:

 Do you think the PC industry is highly profitable? Why?
 Due time: 11 pm, Mar 8 (submitting to the Web Learning platform)
80

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THE CONCEPT OF STRATEGY

 The definition of strategy

 A brief history of strategy

Whom the value should be distributed to?

The shareholder approach The stakeholder approach

• Important stakeholders: Users

“Focus on the user and all else will follow.”

• Important stakeholders: Communities

 Use renewable energy (wind and solar) in 2017

 Cooperating with International Rescue Committee, NetHope, United Nations

Source: Google website

Maximizing shareholder value or balancing the interests of diverse stakeholders?

 It is practically impossible to measure performance. In principle, pursuing stakeholder interests

What the workers won:

What are the most scarce resources in our age?

Who owns the most scarce resources in our age?

Values to employees : Values to shareholders = 3:1

1. Long-term profits benefit shareholders in the long run.

Firm as property Firm as social entity

Ten years’ achievements (2010-2020):

 The definition of strategy

 A brief history of strategy

Consistency is important for strategy!

1. A firm’s strategy should be consistent with its external environment.

Queen Elizabeth II’s personal net worth: $500 million, not

The wedding of Prince William and Catherine Middleton took

environment, internal resources, and the overall strategy?

“acts as a focus for national identity, unity and

• Perpetuate the family’s social status and wealth

External environment: Internal resources:

• Win the support of the British public

Consistency: key commitments and actions in strategy

Conforming too much to the Being too distinctive as a royal

External Opportunity Threat

External Opportunity Threat

Any critique on SWOT?

SWOT is one of the simplest tools/frameworks in strategy analysis.

Analytical tools/frameworks help you find a structure to

Strategy tools/frameworks are like maps:

• Ignore, reduce, and simplify details but still provide

• Offer a way to comprehend reality, but do not

Answer the following question:

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