Chapter 1

The Origins
of Strategy
 Historical Perspective
of Strategic Thinking
The term strategyis intended to focus on the
interdependence of the adversaries decisions and on their
expectations about each others behavior. Thomas C. Schelling

Strategy can be defined as 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 carrying out those goals. Alfred D. Chandler, Jr.

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 Historical Perspective
of Strategic Thinking
Many definitions of strategic thinking
exist
Academics, managers, and consultants
identify patterns
Path-dependence (mid-1980s)

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 Origins of Strategic Thinking
Military Interpretations
Ancient Greek origins
First Industrial Revolution
(mid-1700s to mid-1800s)
Failed to induce strategic thinking or behavior
Companies lacked power to influence market
outcomes
Adam Smiths invisible hand (The Wealth of
Nation)

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 Origins of Strategic Thinking
Second Industrial Revolution
(second half of 19th Century)

Railroads built mass markets (1850)

Improved access to capital and credit
allowed economies of scale to emerge
Alfred D. Chandler, Jr.
visible hand superseded invisible hand

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 Chandlers 8 Principles
modern multi-unit business replaced small traditional enterprise,
managerial hierarchy;
multi-unit business enterprise ;
hierarchy itself became a source of power, permanence and continued
growth;
salaried managers became increasingly professional and technical;
multi-unit business enterprise grew in size and diversity, the management
of the enterprise became separated from its ownership;
managers preferred policies that favored long term stability and growth;
as the large enterprises grew and dominated major sectors of the
economy they altered the basic structure of these sectors and of the
economy as a whole.

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 Origins of Strategic Thinking
Second Industrial Revolution
(late 19th Century)
Large, vertically integrated companies
emerged in U.S., then Europe
Captains of industry articulated strategic
thinking
GM - Alfred Sloan (1923-1946)
New Jersey Bell - Chester Barnard (1930s)

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 Origins of Strategic Thinking
World War II era (1939 - 1945)
Strategic thinking guides management
decisions
Peter Drucker
company could exert positive control over
market forces by using formal planning
MBO

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 Academic Underpinnings
Eminent economists produced earliest
academic writings about strategy
John Commons
Chester Barnard
Ronald Coase
Joseph Schumpeter
Edith Penrose

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 Academic Underpinnings
Elite U.S. business schools emerged
Wharton (1881)
Harvard (1908)
managers should be trained to think
strategically
required second-year course in Business Policy
(1912)
students gain a broader perspective faced by
executives

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 Academic Underpinnings
Professor Kenneth Andrews
conclusions motivated by Swiss
watchmakers
differences in performance and industry
strategies
industry notes/company cases standard in
Harvards Business Policy courses
B-School discussions focused on SWOT
Analysis Framework (1960s)

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 Academic Underpinnings
Exhibit 1.1 Andrews Strategy Framework

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 Academic Underpinnings

Harvard Business Policy Conference (1963)

Diffused SWOT concept in academia and
management practice
Defining a firms distinctive competencies was still
problematic

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 Academic Underpinnings
Exhibit 1.2 Ansoffs Product/Mission Matrix

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 The Rise of
Strategy Consultants
Boston Consulting Group (BCG) (1963)

Applied quantitative research methods to

business strategy
Bruce Henderson, Founder
good strategy primarily based on logic
Drew from academic knowledge base

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 BCG and the Experience Curve
BCG
Experience (learning) curve (1965-1966)
for each doubling of cumulated output
total costs would decline roughly 20% due to
economies of scale
organizational learning
technological innovation

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 From the Experience Curve
to Portfolio Analysis
Growth Share Matrix (early 1970s)

BCG Basic strategy

recommendation
Maintain balance between Cash Cows and
Stars
Allocate resources to Question Marks
Sell off Dogs

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 From the Experience Curve
to Portfolio Analysis
Exhibit 1.4 Blogs Growth-Share Matrix

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 Strategic Business Units and
Portfolio Analysis
McKinsey & Company
Strategic Business Units (SBUs)
GE/McKinsey nine-block matrix

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 Strategic Business Units and
Portfolio Analysis
Exhibit 1.5 The Industry Attractiveness-Business Strength Matrix

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 Summary of
Strategic Thinking
History through mid 1970s
Early history affected by military concepts
Sociology influenced the early concepts
mostly by business school professors
Consulting firms
disseminated academic insights
developed sets of tools to monitor SBUs
Disillusionment of tools set in
Fragmented agenda for future strategic R&D

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