Chapter 2

The concept of strategy

This chapter covers the following
1. The nature of strategic decisions
2. An approach to strategic planning
3. Strategic drift
Learning objectives
Chapter flow chart
 1. Nature of strategic planning

• Strategic planning
– ‘Strategic planning’ can also be known as ‘long-term
planning’ or ‘corporate planning’
– The characteristics are
• considers the longer term
• considers the whole organisation.
• it gives direction to the whole organisation,
• it considers all stakeholders 
• it looks at how to gain a sustainable competitive advantage
• it relates the organisation, its resources and competences to
its environment
• The word is used in different contexts to mean
different things
– Strategy is a pattern of activities that seeks to
achieve the objectives of the organisation and
adapt its scope, resources and operations to
environmental changes in the long term.’
• Advantages and disadvantages of strategy

Advantages Disadvantages
forces organisations to look ahead can be time consuming and expensive

improved fit with the environment may be difficult in rapidly changing markets

better use of resources can become a straightjacket

provides a direction/vision some unplanned for opportunities
may be missed
helps monitor progress can become bureaucratic
ensures goal congruence is less relevant in a crisis

• Strategic planning is more important when

– there are long lead times,  
– the business needs to be turned around,
– there is high capital expenditure and
– many stakeholders are affected
 Levels of strategic planning

– Strategies at different level should be consistent

 Approach to strategic planning

• The Johnson, Scholes and Whittington (JSW)

model of strategic planning consists of three
elements:
• The strategic position/analysis: This includes
– the environment helping identify opportunities
and threats 
– the strategic capability of the organisation helping
identify strengths and weaknesses 
– the culture, beliefs and assumptions of the
organisation 
– the expectation and power of stakeholders
• Aim of Strategic analysis:
– is to form a view of the main influences on the
present and future well-being of the organisation
• Strategic analysis would cover
– The PESTEL environmental variables
– The resource availability and its relative strengths
and weaknesses.
– The aspirations and expectations of the groups
that have an interest in the organisation
– The beliefs and assumptions that make up the
culture of the organisation
– Consideration of all relevant features
• Strategic choice
– Generation of strategic options, e.g. growth,
acquisition, diversification or concentration.
– Evaluation of the options to assess their relative
merits and feasibility. 
– Selection of the strategy or option that the
organisation will pursue
• To achieve the goal, there are two ways in
which a strategy can be pursued:
– internal development (organic growth)
– external development – merger/acquisition, JV,
franchising/licensing.
• While considering Strategic options three main
areas to consider.
– Porter describes certain generic competitive
strategies (lowest cost or differentiation) that an
organisation may pursue for competitive
advantage. They determine how you compete.
– Ansoff describes product-market strategies (which
markets you should enter or leave). They determine
where you compete and the direction of growth.
– Institutional strategies (i.e. relationships with other
organisations) determine the method of growth.
Ansoff product market
For analysing the product
market strategies available to
the business

Porter’s Five force model

For analyzing firms
competitive environmental
to understand
competitiveness of business
• Evaluation of the options (analysis to assess their
relative merits)
– strategies are often assessed against three criteria –
whether it is suitable, feasible and acceptable for the
organisation
– They need to know which of these options builds upon
strengths, overcomes weaknesses and takes advantage of
opportunities, while minimising or circumventing the
threats the business faces. This is called the search for
strategic fit or suitability of the strategy
• Strategy into action/implementation (it
needs three elements)
– Organising/structuring.
– Enabling an organisation’s resources should
support the chosen strategy.
– Managing change.
• Strategic management in different context
Type of organisation Characteristics Key strategic issues

1. Small businesses Operate in single market Dealing with pressure

from larger competitors

2. Multinationals Likely to operate in many control of diverse

diverse markets with a businesses is vital
wide product range Business unit strategy

3.Public sector Significant government Role of ideology

influence, Planning Competition for
horizon rather than resources, strategic
market conditions alliances are key issues
Voluntary and non profit Key objective is non Role of values or ideology,
sector financial centralised decisions
3. Strategic Drift
• When planned strategies are not realised due to
unexpected developments such as 
– the organisation’s underlying assumptions turn out
to be invalid
– changes in the organisation’s external environment,  
– Changes in the organisation’s internal environment  
• If an organisation fails to keep up with the
changes in its external environment it can lead
to what is known as strategic drift.
• It is a situation where the organisation’s strategy
gradually, moves away from the forces at work
in its environment.
• Causes of strategic drift
• The reasons for the drift can be rapid and
unexpected changes in the environment new
technologies other reasons could be
– cultural influences
– the power structure
– the effect of politics and the relative influence
• Avoiding strategic drift
• To avoid drift regularly do the following
– regularly assesses its environment (for changes
– has flexible systems for reacting to changes in its
environment
– breaks down barriers to change & successfully
copes with change
– has a clear idea of its mission and objectives in
order to understand where it wants to be in the
future and to guide strategic choices
– has strong leaders who are willing and able to make
changes to organisational direction and strategy