Business Strategy

By Luke Ike

This book produces a comprehensive introduction to business strategy. The purpose is to help managers and students who aim to be managers develop their awareness and understanding of business strategy.

• Language: English
• Publisher: Xlibris UK
• Release date: Feb 3, 2017
• ISBN: 9781524597511

Luke Ike

Dr Luke Ike is a lecturer and management consultant. He obtained his MSc degree in Business Administration from the University of Innsbruck, Austria Europe, and PhD degree in Business Administration from the University of Economics and Business Administration Vienna, Austria Europe. He completed post graduate studies in Ethnic and Minority Small Business Management at the London Guildhall University, United Kingdom, (now London Metropolitan University). He also obtained Post Graduate Certificate in Education (PGCE) from University of Greenwich, London, United Kingdom. Dr Luke Ike is the founder and CEO of COLNNECT Ltd Centre for Education, Management Studies and Consultancy, London, United Kingdom. He is also the author of many classic business textbooks such as - Management (Principles & Practices), Risk Management & Captive Insurance, International Management (Principles & Practices), Strategic Management (Concepts & Practices), International Business (Environments & Operations), Business Strategy (An Introduction), Entrepreneurship (Initiating and Developing a New Venture), Marketing (Traditional, Digital and Integrated). ContactE-mail:[e-mail]

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Copyright © 2017 by Luke Ike.

ISBN:      Softcover      978-1-5245-9752-8

                eBook             978-1-5245-9751-1

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

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Rev. date: 02/02/2017

Xlibris

800-056-3182

www.Xlibrispublishing.co.uk

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CONTENTS

Introduction to the book

Part 1

An Introduction To Strategy

Introduction

Chapter 1

The Nature Of Strategy

1.1. The Military Background

1.2 Mintzberg’s 5 Ps

1.3 Other Definitions

1.4 Explicit and Implicit Strategies

1.5 The Essential Components of A Strategy

Further Reading

Chapter 2

Approaches To Strategic Thinking And Management

2.1 Introduction

2.2 The Planning Approach

2.3 The Classical Approach

2.4 The Competitive Position Approach

2.5 The Emergent Approach

2.6 The Evolutionary Approach

2.7 The Core Competent Approach

2.8 The Learning / Knowledge –based Approach

2.9 The Behavioural Approach

2.10 Incrementalism

2.11 The Processual Approach

2.12 The Systemic Approach

Further Reading

Chapter 3

Levels Of Strategy And Decisions

3.1 Corporate Level Strategy

3.2 Business Level Strategy

3.3 Functional Level Strategy

3.4 Operational Level Strategy

3.5 Types of Decisions

Further Reading

Chapter 4

Competitive Advantage And The Strategic Process

4.1 Introduction

4.2 Sources of Competitive Advantage

4.3 Sustaining Competitive Advantage

4.4 Hybrid Strategies

4.5 The Strategic Process

Case Study

Further Reading

Part 2

Strategy Analysis

Introduction

Chapter 5

Internal Analysis

5.1 Purposes of Internal Analysis

5.2 Company Strategy Situation Analysis

5.2.1 Comparative Analysis

5.2.2 Competitive Intelligence

5.2.3 The Value Chain Analysis

5.2.4 Resource Base Analysis

5.2.5 Competence Analysis

5.2.6 Analysis of Human Resources

5.2.7 Analysis of Organisation Culture

5.2.8 The Product Life Cycle Analysis

5.2.9 Analysis of Organisation Structure

Case Study

Further Reading

Chapter 6

External Analysis

6.1 The General Business Environment- PESTELI

6.1.1 Political Factors and Analysis

6.1.2 Economic Factors and Analysis

6.1.3 Social Factors and Analysis

6.1.4 Cultural Factors and Analysis

6.1.5 Technological Factors and Analysis

6.1.6 Environmental Factors and Analysis

6.1.7 Legal Factors and Analysis

6.1.8 International Factors and Analysis

6.1.9 Business Stakeholders

6.2 Industry/Competitive Environment

6.2.1 Introduction

6.2.2 The Industry

6.2.3 The Porter’s Five Forces Model

6.2.4 Strategic Group Analysis

6.2.5 Analysis of Key Success Factors (KSF)

Case Study

Further Reading

Part 3

Strategy Options/Evaluation/Choice

Introduction

Chapter 7

Strategy Options/Choice

7.1 Generic Strategies

7.2 Offensive Strategies

7.3 Defensive Strategies

7.4 Growth Strategies

7.4.1 Internal Growth Strategies

7.4.2 External Growth Strategies

7.5 External Mechanisms of Growth

7.6 External Growth Without Merger & Acquisitions

7.7 Adaptive Strategies

7.8 Corporate Retrenchment Strategy

7.9 Divestiture Strategy

7.10 Disposals

7.11 Corporate Turnaround Strategy

7.12 Portfolio Restructuring Strategy

7.13 Matching Strategy to Company Situation

7.14 Evaluating Strategic Options/Selections

Case Study

Further Reading

Part 4

Strategy Implementation & Performance Feedback

Introduction

Chapter 8

The Nature Of Strategy Implemetation

8.1 Introduction

8.2 Resource Base

8.3 Effective Leadership

8.4 Organisation Structure

8.5 Corporate Culture

8.6 Information Communication and Control Systems

8.7 Stakeholders

8.8 Customers

8.9 Change Management

8.10 Internationalisation

8.11 Corporate Social Responsibility

Further Reading

Chapter 9

Strategy Performance Feeback

9.1 Introduction

9.2 Strategy Performance Monitoring

9.3 Strategy Performance Review

9.4 Strategy Performance Control

9.5 Strategy Performance Improvement

Case Study

Further Reading

References

ACKNOWLEDGEMENTS

I am highly indebted to Almighty God for the wisdom behind this book, and dedicate this book to the glory of God in Jesus name –Amen.

Special thanks to my wife and children for providing a supportive and caring environment for this undertaking.

Luke Ike

INTRODUCTION TO THE BOOK

This book is about the task of forming and executing business strategy.

Doing a good job of managing inherently requires good strategic thinking and management.

Among all the things managers do, few affect company performance more fundamentally than how well managers chart the company’s long term direction, develop competitively effective strategic moves and business approaches, and execute the strategy in ways that produce targeted results.

There is a strong case for linking good management performance to how well business strategy is formulated and executed. The better conceived a firm’s strategy and the more proficient its execution, the greater the chance the firm will be a solid performer.

Good strategy and good strategy execution are more trustworthy signs of good management. Crafting and implementing strategy are core management functions.

Today’s managers have to think strategically about their firm’s position in relations to its competition and business environment. They need to know the business internal and external environment so well enough to know what kind of strategic changes to initiate and execute.

This book produces a comprehensive introduction to business strategy. The purpose is to help managers, and students who aim to be managers, develop their awareness and understanding of business strategy.

PART 1

AN INTRODUCTION TO STRATEGY

Introduction

This part provides a general introduction to strategy.

To understand strategy and be able to apply it effectively, the reader needs to understand the nature of strategy.

It is well understood that all businesses in the competitive environment are affected by strategy and strategic issues. This is usually the case as strategy links the organisation to the outside world.

Managers are expected be concerned about strategy, as they need to find ways to respond to competitors, cope with difficult environmental changes, and effectively utilize available resources.

In this respect, many businesses are engaging managers who are equipped with the knowledge and understanding as well as effective application of strategy in organisations to achieve desired results.

This part includes chapter 1, 2, 3, and 4 of the book.

Chapter 1 deals with the nature of strategy introducing concepts, meanings, and essential components of strategy. Chapter 2 introduces some of the approaches to strategic thinking and management, as found in literatures. Chapter 3 introduces different levels of strategy and decision making. Chapter 4 introduces strategy in relation to achieving competitive advantage, and the strategic process.

CHAPTER 1

THE NATURE OF STRATEGY

Aim

To introduce the nature of strategy.

Objectives

After studying this chapter you should be able to:

• Understand the meaning of strategy and explain what managers do.

• Describe the military background to strategy.

• Outline various contributions to the definition of strategy.

• Describe explicit and implicit strategies.

• Describe the essential components of a strategy.

WHAT IS STRATEGY?

1.1. The Military Background

The meaning of strategy will be better understood if we trace it back to its original military settings or background.

Originally, strategy was a term used by the military, and this origin gives us a good idea of how a strategy should be drawn up.

In relation to its military background, strategy meant the planned deployment and use of military forces and materiel to achieve specific objectives.

In a war situation the senior military commanders must define exactly what their objectives are (to capture an area of land, to destroy an army etc). To achieve these objectives they must decide on a number of factors so as to stand a good chance of victory:

✓ The resources such as troops and materials that will be needed (resource requirement).

✓ The strength of enemy forces (the strength of the competition).

✓ The actions the enemy are likely to take (competitor moves)

✓ How best to achieve the objective (strategy).

✓ When to attack (timetable for action).

✓ What to do if plans do not go as expected (contingency plans).

These factors help to determine the effectiveness of the military actions and performance.

The terms in brackets show some military terms that is now very popular with business managers in relation to business strategy.

Managers have found it easy to use military terms to describe their strategic situations. Managers are expressing their strategic intentions, situations and performance by using military terms or languages such as- engaging in price wars, border clashes, market invasion guerrilla warfare to repel attack. A firm’s advertising could now be expressed as its propaganda arm, its salespeople are the shock troops, and marketing research is intelligence.

The military background to strategy usually relays the underlying thinking and emphasis on making gains at the expense of someone else (a zero- sum game). However, an effective business strategy should not be a zero- sum game, where customers or distributors etc, gain or lose at the expense or benefit of business. An effective business strategy is expected to provide benefits to both sides - the business and stakeholders (a win- win- situation).

1.2 Mintzberg’s 5 Ps

Mintzberg (1998), suggested nobody can claim to own the word strategy, as the word can be expressed in many ways such as:

• A plan – an intentionally adopted means of achieving a goal, with its progress monitored from start to a predetermined finish, or a consciously intended course of action. (A deliberate strategy).

• A ploy – a manoeuvre, intended to influence employees ‘behaviours, outwit an opponent or competitors etc- a manoeuvre in a competitive game. For example a firm might add unnecessary plant capacity. The strategy is not to produce the goods but to discourage a competitor from entering the market.

• A pattern - associated with a pattern of behaviour in which progress is made by adopting a consistent form of behaviour. Unlike plans and ploys, patterns just happen as a result of the consistent behaviour. (Emergent strategies).

A position – in terms of environmental fit and relationships with the markets or other organisations. A position strategy is appropriate when the most important thing to a firm is how it relates to, or is positioned with respect to its competitors, or its markets (i.e. customers). In other words, the organisation wishes to achieve or defend a certain position. A position might be a distinctive niche, whereby the firm makes distinctive products or services, or exploits a distinctive competence.

• A perspective - a unique way of looking at the world, of interpreting information from it, judging its opportunities and choices and actions. Perspective strategies are used by some firms to make their employees think in a certain way, i.e. change their perspectives.

For most organisations the underlying purpose in developing strategy is to perform well. This raises the concept of central importance in discussing strategy, that of competitive advantage. Introduced by Potters in 1980s, the concept is concerned with factors that give an organisation an edge over its competitors, and enable it to achieve higher levels of profitability. Strategy defined in this competitive sense – which seeks to identify and sustain sources of competitive advantage is called competitive strategy. It is concerned with how managers respond to the five forces in the competitive environment.

According to Mint berg and Waters (1985), the pattern in a stream of strategy decisions tends to be emergent as they are "deliberate. Intended strategies are plans, those plans or aspects of plans which are actually realised are called deliberate strategies. Emergent strategies are those which develop out of patterns of behaviour. The task of management is to control and shape these emergent strategies as they developed. Many firms are constantly adjusting and reviewing emergent strategies in the light of their experiences, in combination with deliberate strategies which are both intended (planned) and realised (implemented). This helps to explain why strategies that firms follow are likely to be a mixture of deliberate and emergent, reflecting firms’ needs for planning, responding to unexpected events, and organisational learning.

1.3 Other Definitions

A number of other management scholars and researchers have come up with several perspectives on what strategy could be interpreted and understood. It will be useful to introduce some of their views and perspective for better understanding of the subject matter.

• Strategy is the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of actions and the allocation of resources for carrying out those goals (Chandler, 1962).

• Strategy is a fundamental pattern of present and planned resource deployment and environmental interactions that indicate how the organisation will achieve its objectives (Hofer and Schendel, 1978).

• Strategy is the way in which a corporation endeavours to differentiate itself positively from its competitors, using its relative corporate strengths to better satisfy corporate needs (Ohmae, 1983).

• Strategy can be present in three models – linear strategy, adaptive strategy, and interpretive strategy. A tripartite classification of strategy ought to pay attention to and focus more on means, with goals seen as an alignment of the organisation and the environment. Lower level changes in style and marketing of quality were also seen as strategically important (Chaffee, 1985).

Strategy is a pattern of decisions which represent the unity, coherence and internal consistency of a company’s strategic decisions that position a company in the environment and give the firm its identity, its power, to mobilise its strengths, and its likelihood of success in the marketplace (Kenneth Andrews, 1986).

• Strategy is a unified, comprehensive, and integrated plan that relates the strategic advantages of the firm to the challenges of the environment, designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organisation (Glueck and Jauch, 1988).

• Strategy is concerned with the general direction and long term policy of the business as distinct from short term tactics and day-to-day operations (Segal- horn, 1998).

• Hax (2001) believes that the concept of strategy should be considered separately from the process of strategy, and introduced six critical dimensions of strategy:

1. Strategy as a unifying and integrating pattern of decisions.

2. Strategy as a means of establishing an organisation’s purpose in terms of its long term objectives.

3. Strategy as a definition of a firm’s competitive domain.

4. Response to external opportunities and threats and to internal strengths and weaknesses as a means of achieving competitive advantage.

5. Strategy as a logical system for differentiating managerial tasks at corporate, business, and functional level.

6. Strategy as a definition of the economic and non-economic contribution that the firm intends to make to its stakeholders.

• Strategy is the match between the organisation’s internal capabilities and its external relationship- its suppliers, its customers, its competitors, and the social and economic environment within which it operates (Kay, 1996).

• "Strategy is a management game plan for strengthening the organisation’s position, pleasing customers, and achieving performance targets (Thompson, 2006).

Simply put, strategy could be described as a means to ends – the ends would be goals and objectives of the firm. The art of strategy is about winning. Strategy is usually grounded in the array of competitive moves and business approaches management depends on to produce a successful performance. Managers devise strategies to guide how the company’s business will be conducted and to help them make reasoned, cohesive choices among alternative courses of action. Without a strategy, a manager has no thought- out course to follow, no roadmap to manage by, no unified action programme to produce the intended results. The strategy making challenge is to mould business decisions and competitive actions taken across the company into a cohesive pattern. The prevailing pattern of move and approaches indicate what the current strategy is; new moves and approaches under consideration signal how current strategy may be embellished or recast.

1.4 Explicit and Implicit Strategies

It is expected that every firm operating in an industry should have a competitive strategy. The strategy expected by a firm operating in an industry could be described in terms of explicit and implicit strategy.

When the strategy of a firm is properly documented, it is described as explicit strategy, and may have been developed through planning process. The emphases being placed on strategic planning in many firms reflects the proposition that there are significant benefits to gain through explicit process of formulating strategy, to ensure that the policies and actions of functional departments are coordinated and directed at some common set of goals.

Unlike explicit strategies that are properly planned and documented, implicit strategies may have evolved through the activities of the various functional departments of the firm. Left to its own devises, each functional department will inevitably pursue approaches dictated by its professional orientation and incentives of those in charge. Implicit strategies may exist only in the chief executives head. This is peculiar with small business owner/manager

With all these explanations in mind, Minztberg (2006) identified eight styles of explicit and implicit strategic management:

1. Planned strategies.

2. Entrepreneurial strategies.

3. Ideological strategies.

4. Umbrella strategies.

5. Process strategies.

6. Disconnected strategies.

7. Consensus strategies.

8. Imposed strategies.

1.5 The Essential Components of A Strategy

• The Three Components Based Strategy- a three legged stool

A number of writers (Thompson, 2007, Jones, 20012, Ike, 2016) are of the opinion that a strategy has three essential components that can be compared with that of a three legged stool. These writers believe that for the strategy to succeed, the three legged components must stand firmly. That include:

1. Scope – this explains where to compete - (attractive market opportunities). External analysis id needed to identify this area and covers the tools and framework.

2. Resource – this relates to how to compete or what unique value to bring to the market – (we need resources and capabilities to serve the market better than others. This includes tangible and intangible resources) Internal analysis is needed to identify this area.

3. Competence/implementation - this pertains to strategy execution and sustainability of strategic results.

Specifying the components of strategy helps a firm identify clearly the areas of strategic focus to achieve successful strategy formulation and implementation.

Ideally a good strategy should help a company not only do what it does best, but do it better than competitors.

What many functions a good strategy does for a company is to be a boundary marker- that defines what a company does and does not do, how it does it, and what it does best.

The three components introduced are essential boundary markers that help a firm do what it does best. It is assumed that if one of these components forming the essential standing legs for the strategic balance is missing, or even weak, the whole firm’s strategic performance will be affected or even fall over.

• Chandler’s Three Components of A Strategy

According to Chandler (1962), strategy is 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 these goals.

Chandler’s definition is considered adequate as it presents three important components of strategy:

1. The determination of long term goals - concerns the conceptualisation of coherent and attainable strategic objectives. Without objectives, nothing else can happen. If you do not know where you want to