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Strategy - Fundamentals

Relevance

• SM= A discipline that looks at strategic issues- concerning multiple


functions simultaneously- facing firms.

– Firm - a special type of organization (a collection of people joined


together to pursue some mission in common)

– Special type, because of involvement of “economic” transactions and


motive; off late broadening scope- talk of social transactions and motive
Strategic Issues
• require top-management decisions/ involvement
• require large amounts of the firm’s resources
• affect the firm’s long-term prosperity and are future oriented
• usually have multi-functional or multi-business consequences
• require considering the firm’s external environment
• concerns multiple stakeholders
Fundamental Questions in Strategy

The term ‘Strategy’


Origin: Greek word (strategos)- art of the general
Modern-day application to business and competition dates to the 1960s

• Strategy as theory of how to compete successfully at firm-level; attempts


to answer following key questions-

• Basic question-
– Why do some firms perform better than others?

• Related questions-
– What determines the scope (product-market) of the firm?
– How do firms behave (competition)?
– What determines the international success or failure of firms?
Core Guiding Theories

• Two prominent lenses of strategy theory:

– Industry-based view (I/O) – structural features of the industry


determine firms’ profitability. (SCP)
– Assumes
 External environment imposes constraints that determine firms’
strategies leading to above-average returns.
 Most firms in an industry control similar resources and pursue
similar strategies (Resource homogeneity)
 Resources used to implement strategies are highly mobile across
firms (Resource immobility)
 Organizational decision makers are rational and committed to acting
in the firm’s best interests (profit-maximizing)
 [ignores psychological, social, and political dimensions of decisions
making]
Core Guiding Theories

• Two prominent lenses of strategy theory:

– Resource-based view (RBV) - firm specific differences in resources/


capabilities determine firms’ profitability.
– Assumes
 Resource Heterogeneity-
 different firms may have different resources
 Resource Immobility-
 it may be costly for firms without certain resources to acquire or
develop them
 some resources may not spread from firm to firm easily
What is Strategy?

• Strategy as Plan
– “A set of concrete plans to help the organization accomplish its
goals” (Oster, 1994)

• Strategy as Action
– “A pattern in a stream of actions or decisions” (Mintzberg, 1978)

– “The creation of a unique and valuable position, involving a


different set of activities… making trade-offs in competing….
creating fit among a company’s activities” (Porter, 1996)
What is Strategy?
• Strategy as Integration

– “The determination of the basic long-term goals of an enterprise,


and the adoption of courses of actions and the allocation of
resources necessary to carry out these goals” (Chandler, 1962)

– “The major intended and emergent initiatives undertaken by


general managers on behalf of owners, involving utilization of
resources to enhance the performance of firms in their external
environment” (Nag, Hambrick, and Chen, 2007)

– “The analysis, decisions, and actions an organization


undertakes in order to create and sustain competitive
advantages” (Dess, Lumpkin, and Eisner, 2008)
The Strategic Management Process
Strategic analyses
SS = Session • Internal Environment (SS7-10)
• External Environment (SS 5,6)

Strategy
Definition: The central, integrated,
externally oriented concept of how a firm
Vision and will achieve its objectives (superior perf
mission (SS4) as compared to others = CA)
Elements of Strategy: Implementation
• Fundamental • Arenas; Vehicles; Differentiators; levers and
organizational Staging; and Economic logic strategic
leadership
purpose Content: Business Level {How to 0 (PGP II, SM- II)
compete} (SS 11, 12)
• Organizational • Cost leadership; Differentiation; and Focus
values Content: Corporate Level {Which
product-market to be in} (SS 13-15)
• Diversification: Concentric/
Conglomerate; Internationalization (SS
16,17); Restructuring