Strategy in Context

BHS0035

Strategy: A Brief History and a

Theoretical Overview
Dr Anna Zueva

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Lecture overview
• The benefits and dangers of having a strategy
• The basic strategy development process
• The different ways to understand strategy
• Perspectives on strategy development
• Key historical theoretical perspectives that
inform our thinking about strategy today

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 Topic 1.4

Strategy: What is it? What is it for?

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Strategy
• From Greek “Strategia” – “Art of a general or
troop leader”.
– A military concept incorporated into thinking about
business organisations in the 1950s and 1960s
– Still largely defines how we think about broad
business decision-making/planning today

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Strategic Management

Paradigm

Analysis/Context:
The situation in which and
for which strategy develops

Alternatives/Content:
Action/Process:
Aims, objectives and actions
expected of those The way in which strategy
influencing and influence by develops and is implemented
developing strategy

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Pro’s and con’s of having a strategy

+ –
Strategy Sets Direction
Creates a clear organisational course Hides unanticipated dangers

Strategy Focuses Effort

Promotes coordination of activity Groupthink / Closes peripheral vision

Strategy Defines the Organisation

Makes organisational life meaningful Veils organisational complexity

Strategy Provides Consistency

Reduces ambiguity, creates order Simplifies reality, stifles creativity
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Mintzberg et al. (1998)

Levels of Strategy

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Mintzberg’s Concept of Strategy

Intended Strategy
(plan or intended position)

Deliberate Strategy
(strategy formulation)

Unrealised Strategy

Emergent Strategy Realised Strategy

(strategy formation) (pattern or actual position)
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 Topic 1.5

The different ways to understand

strategy

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Definition: Mintzberg’s Five P’s
• Strategy as a Plan
• Strategy as a Pattern
• Strategy as a Position
• Strategy as a Perspective
• Strategy as a Ploy

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Mintzberg’s Strategy Elephant

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The Prescriptive Approach

• Focus: How strategy should be formed

• Strategic management as
– Design
– Planning or
– Positioning
• Tools: SWOT, PESTLE, Ansoff’s matrix, Porter’s models…
• Strategy should be a formal, deliberate process of conscious
thought
• Is based on objective and on-going analysis of external
environment and internal capabilities in relation to organisational
objectives
• Responsibility lies with top management or dedicated planning
teams
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 The planning school
Premises Planning Implementation and Review

Planning
studies
Fundamental
organisational
socio-economic
purpose Strategic Medium range
planning and programming Short-range
plans and planning and
programmes plans
Implement- Review and
Values of top Company
tation of evaluation of
managers mission, long- Sub-objectives Goals, targets,
plans plans
range Sub-policies, procedures,
objectives, sub-strategies tactical plans
Evaluation of policies,
opportunities strategies
and threats and
strengths and
weaknesses

Feasibility
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testing
The Descriptive Approach
• Focus: How strategy is actually formed
• Strategy may be:
– Visionary (entrepreneurial school) – determined by the organisational
leader
– Incremental (learning school) – unfolding in small interconnected steps
over a long period of time
– Reactive (environmental school) – formed reactively in response to the
changes in the organisation’s environment
– A negotiation (political school) – negotiated with different stakeholders
– A social construction (cognitive and cultural schools) – heavily influenced
by dominant social norms

• Challenge to understanding strategy as objective, deliberate, far-

reaching, formal and non-conflictual 14
Power Dynamics in Strategy

Individual manager’s balancing act Stakeholders/

Interest Groups

Government

Managers General Public

Shareholders Customers

Suppliers
Workers
Non-Profit
Organisations
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 Topic 1.5 Activity – Menti Vote
Bank of America’s Employee Compensation Strategy
• Watch a short video following this link:
https://www.youtube.com/watch?v=8F_LB4gsioM (2 minutes)
• The video is Bloomberg news about Bank of America's decision to
raise its minimum wage to $25/hour in the US due to post-Covd
labour shortages.
• What Mintzberg’s strategy “school/s” (or perspective/s) describe best
how Bank of America formed its employee compensation strategy?
• Go to www.menti.com, input a code (will be given during the lecture)
- and vote on the best option!
• Then go to https://padlet.com/azueva/feur84tb7rqywjtv (or use QR
code on next slide) and write a few words to explain your vote
(anonymously) 16
QR Code for Topic 1.5 Activity
 Topic 1.6

Historical overview of strategy theory:

From Penrose to Porter

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1959: Edith Penrose - The Theory of the Growth of the Firm

• Firm as a bundle of resources: “[A] firm is more than an

administrative unit; it is also a collection of productive resources the
disposal of which between different uses and over time is
determined by administrative decision” (1959: 24).

• Resources are “the physical things a firm buys, leases, or produces

for its own use, and the people hired on terms that make them
effectively part of the firm” (1959: 67).

• Firms attain their unique character through the possession and

deployment of diverse (heterogeneous) resources

• The interaction between different resources determines a firm’s

performance
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1962: Alfred Chandler – Strategy and Structure

• Historical accounts of large US organisations – railroads, oil,

chemical, automotive, etc. companies…
• Defined strategy 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 the goals.” (1962: 13)
• Strategy is formulated in response to the changes in the
external environment
• Organisational structure is adjusted to accommodate strategy
(e.g. development of the M-form corporation)

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Topic 1.6 (Additional) Activity – Personal Reflection
Strategy and Structure – What Comes First?

• Do you agree with Alfred Chandler that structure follows strategy?

• You can base your reflection on thinking about your own life and your
present status of a university student.
• Being a student is a structural aspect of your life.
• Did you become a business student because of a particular life strategy you
were following?
• How will being a business student impact your future life? Will it expand
your choice of activities/occupations? Will it limit this choice in some way?
• Write notes in your personal notebook.
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1965: Igor Ansoff - Corporate Strategy

• Strategy is “decisions on what kind of business the

firm should seek to be in” (1965: viii)
• Ansoff’s growth matrix:
– Product-market scope (old/new products and markets)
– Growth directions

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1965/69: Kenneth Andrews et al. – Business Policy: Text and Case

• Defined strategy as ““the pattern of objectives, purposes, or goals

and major policies and plans for achieving these goals, stated in such
a way as to define what business the company is in, or is to be in and
the kind of company it is or is to be” (1969: 15).
• Strategy as composed of two interrelated activities: formulation and
implementation.
• To formulate strategy is to identify and reconcile four things:
– Market opportunity
– Firm competence and resources
– Managers’ personal values and aspirations
– Obligations to segments of society other than the stockholders

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1980s: Michael Porter
• A firm’s performance foremost depends of the
industry environment in which it competes
– Focus on the external environment as opposed to internal
resources
• Industry structure determines behaviour of firms
– E.g. competitive dynamics
– ‘Hypercompetition’ of modern times
– Firm’s success and competitive advantage depends on its
positioning and differentiation within its industry
– Strategy is about finding the right position in the industry
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 Topic 1.7

Historical overview of strategy theory:

From Coase to Williamson

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1975/85: Oliver Williamson – Transaction Cost Economics

• Roots in 1932 Ronald Coase’s Theory of the Firm.

• Explanation of why organisations exist
• Hierarchies may be more effective than markets
– Internalisation of transactions
– Importance of control over productive activities
– Questions about how this control should be organised
• Application:
– U-form, M-form and Hybrid organisations
– Cooperative strategies (joint ventures, strategic alliances)
– Questions of organisational growth (organic vs acquisitions)
– Foreign market entry modes

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Ronald Coase and why firms exist: A cake example

You want a cake. Where to get it? You have two options:

Buy it in a shop Make it yourself

Which option would get you a better cake?

Pros and cons of buying it in the shop Pros and cons of making it yourself
• It’s quick • You have control over the ingredients
and quality
• Professional bakers may be able to • It may be cheaper than buy it
make more varied cakes than you, but: • You can make it taste and look exactly
• You have no control over quality like you like, but:
• It may be more expensive than making • It takes longer
• It requires baking skills
it yourself

• The cons above are your transaction costs (called so by Williamson)

• You would generally choose an option with lower transaction costs 27
• “Making it yourself” is a firm – an organization that creates things itself as opposed to
buying them on the market.
Contemporary strategic management?

• Shift in focus?
– Traditionally – focus on improving financial
performance of individual organisations
– More recently:
• Redefining and widening the notion of performance
(corporate responsibility and citizenship, social
enterprises)
• Questioning the primacy of competition (cooperation
between organisations, open source product
development, etc.)
• Organisations as members of wider networks
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Conclusions
• Strategy is a discipline that contains many different
perspectives
• Strategic processes are complex and can be examined from
different perspectives
– Traditional strategic theory speaks about:
• Organisational resources
• Desired market positions
• Environmental pressures
• Industry conditions
• Manager’s values and aspirations
• Stakeholder pressures
• Organisational control requirements….
• Can we add to this list or change this thinking?
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 References and further readings
Key readings for this lecture are:
• Mintzberg, Ahlstrand and Lampel (1999) Strategy Safari, London: Prentice Hall.
• Hoskinsson, R., Hitt, M., Wan, W. and Yiu, D. (1999). Theory and research in strategic
management: Swings of a pendulum, Journal of Management, 25/3: 417-456.
Other useful readings:
• Andrews, K. 1971. The concepts of corporate strategy. Homewood, IL: Dow Jones-Irwin.
• Ansoff, H. I. 1965. Corporate strategy. New York: McGraw Hill.
• Chandler, A. D. 1962. Strategy and structure. Cambridge, MA: MIT Press.
• Learned, E. P., Christensen, C. R., Andrews, K. R., & Guth, W. D. 1965/1969. Business Policy:
Text and Case (rev. ed.). Homewood, IL: Richard D. Irwin.Penrose, E. T. 1959. The theory of
the growth of the firm. New York: Wiley.
• Porter, M. E. 1991. Towards a dynamic theory of strategy. Strategic Management Journal, 12
(Special Issue): 95–117.
• Porter, M. E. 1996. What is strategy? Harvard Business Review, 74 (6): 61–78.
• Porter, M. E. 1998. Clusters and the new economics of competition. Harvard Business
Review, 76 (6): 77–90.
• Williamson, O. E. 1975. Markets and hierarchies. New York: Free Press.
• Williamson, O. E. 1985. The economic institutions of capitalism. New York: Free Press.

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