Company Strategy
Identifying a Company’s Strategy
Strategy can be a multitude of things to several companies in the same industry. It depends where they choose to specialise. Porter (1996)[^1] states that “the essence of strategy is in the activities – choosing to perfrom activities differently or to perform different activities to rivals” (p. 64) and “if there were only one ideal position there would be no need for strategy” (p. 68).
Opportunities abound to create strategies to differentiate an organisation from its rivals. Every strategy has unique characteristics that identify it and exploring and learning about these differences will assist in understanding how organisations operate in the market. Organisational strategy will be identifiable from how it behaves in the market and presents itself in published information.
The purpose in developing strategy is to differentiate yourself from compeititors in a manner that can be maintained over time. You are targeting consumers or market share based on the strategic position taken. It is considered that there are five broad strategic approaches commonly used.
Table 1: Examples of Strategic Approaches
Source: Developed by AIB 2023
The Evolving Nature of Strategy
Organisations need to modify their strategies to achieve sustainable competitive advantage because market conditions are constantly changing [^2]. Changes occurring in this manner tend to be incremental. However, continuous fine tuning of strategy is also mentioned by Favaro (2015, p. 3)[^3] who states:
“a strategy can never actually be fully implemented because everything that you necessarily assumed when formulating it — about customers, technology, regulation, competitors, and so on — is in a constant state of flux. CEOs and their business unit leaders must continuously evolve their strategies…if they are to remain relevant and competitive”.
At times, there can be considerable disruption to markets that can result in the failure of organisational strategies. In such cases, organisations need to adapt and develop new strategies to meet the new market conditions. It is interesting to note that traditional strategic planning is being overtaken by the planned emergence model as markets can change rapidly and traditional methods cannot predict the future. Some of the key aspects of the planned emergence model are detailed in the literature including (e Cunha, Palma & da Costa 2006; Kopmann et al. 2017; Wolf & Floyd 2017):
- shorter planning time frames where the emphasis is on the present rather than the future.
- a larger focus on micro-level analysis as opposed to macro-level analysis
- strategic planning as a socialised perspective which facilitates a combination of top down and bottom up planning to deal with unexpected events in the market.
- strategy is viewed more as a practice as opposed to analysis and technique.
What Is Strategy?
Strategy is effectively a series of action designed to achieve the long term goals or objectives of an organisation. In addition, it can be a framework around which decisions are made on how goals will be achieved. According to Porter (1996 p. 64)[^4] :
“the essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not withstand competition”
So, it is essential to understand the market and the competitors in the market in order to perform differently to gain a competitive advantage through having a unique approach. The core concept of strategy is defined by Thompson et al (2022 p. 4)[^5] as “the set of co-ordinated actions that it managers take in order to outperform the company’s competitors and achieve superior profitability” which translates into good business practice of gaining and keeping customers, competing successfully with others and growing the business while conducting operations and achieving targets.
While the practice of implementing strategic behaviour is important, Porter (1996 p. 70)[^6] suggest that there are things you do not do as well saying that “Trade-offs are essential to strategy. The create the need for choice, between alternatives, e.g. cost and quality, and purposefully limit what a company offers”. In combination then, strategy is both a policy (defined set of principles) and actions to guide the organisation forward. The Body Shop (2022)[^7] claim its:
“approach was radically different to the players in the beauty industry. It was simple – ethically sources and naturally-based ingredients from around the world, in no-nonsense packaging you could easily refill.”
Identifying an Organisation’s Strategy
Source: Gamble, Thompson and Margaret Ann Peteraf (2021)[^8]
What is Strategic Management?
Strategic Management is about the collection and management of data that impacts on the organisation’s management and direction. It includes the establishment of the core values, mission and vision statements of the organisation so that the actions of the organisation are aligned with these as it acts. Favaro (2015)[^9] considers there are substantial differences between how and organisation implements strategy compared to executing that strategy.
Implementation of a strategy comprise the decisions and actions being performed to improve competitive advantage, grow the business and use of resources and capabilities. It is effectively the work that is done to close the gap from where an organisation currently sits to where its stategic plan wants it to be.
The execution of strategy is the actual performance of actions to implement the stategy and make it successful from a commercial perspective (Favaro 2015)[^10].
In the past, strategy was determined by senior management and passed to lower levels for implementation and execution. This is no longer the case with everyone in an organisation contributing to its future through commitment to the strategic objectives of the organisation. Strategic management is part of what managers do on a daily basis in working towards the strategic objectives of the organisation. No longer is it a matter of writing a new strategic plan every couple of years. It is a dynamic process.
There are effectively five stages in the development and execution of a strategic plan.
Role of the Board
Developing and execution of strategy is the province of senior management in organisations, but the Board provides oversight and has four key governance imperatives to perform (Thompson et al. 2022, p. 41)[^11] :
- Oversee the organisation’s financial accounting and financial reporting practices
- Critically appraise the organisation’s direction, strategy and business approaches
- Evaluate the calibre of senior executives’ strategic leadership skills
- Institute a compensation plan for senior executives that rewards them for their actions and results that serve shareholder interests.
Developing a Strategic Vision
Vision, Mission and Core Values
The creation of a vision and mission statement, which is also referred to as a purpose statement, is considered to be good management practice (Bowen 2021)[^12]. In the absence of such statements, an organisation has little if any idea of where it is intending to go. The vision statement is generally a one sentence expression of where the organisation seeks to be in a couple of year’s time, generally five years is a reasonable time frame. Thompson et al. 2022[^13] contend that an organisation’s value statements name its core values and in turn, its vision and mission statements should all be mutually supportive.
Thompson et al. (2022)[^14] suggest that if a strategic plan is going to function in a successful manner, the strategic plan needs to provide a focus of what the business should look like and assist managers in making aligned decisions. It also needs to be widely available through the organisation and referred to on a regular basis so it is a part of the culture.
Vision and Mission – The Point of Difference
Many organisations confuse these two statements. The mission statement is often more than one sentence and describes what the organisation is doing now to achieve its vision. The vision statement is an aspirational one of where the organisation sees itself in the future.
Setting Objectives
It is imperative that organisations establish objectives to measure their progress on their journey to achieve their vision. Objectives provide performance measurements to establish progress and they need to be clear and measurable with specific time frames.
In setting objectives, a common practice is to use the SMART framework as it contains all the elements for establishing time bound goals.
The Balanced Scorecard
The balanced scorecard is another performance measurement system that looks at both financial and non-financial aspects to assess organisational performance. It does this from four perspectives (Murray-Webster 2010, p. 446)[^15] :
- financial perspective, using financial performance measures
- customer or client perspective, using measures of customer satisfaction
- internal business perspective, using measures of operational efficiency and quality
- innovation and learning perspective, using measures of the organisation’s abilityh to adapt to changes in the environment.
The balanced scorecard is important because it considers both financial and non financial measures. According to Hasan and Chyi (2017)[^16] the balanced scorecard can provide a total overview of an organisation’s strategy. Whilst financial measures can attract much focus, these cannot be achieved without the supporting structures and objectives in place for an organisation. This is where Key Performance Indicators are put in place to maintain balanced measurements. Paton (2003, pp.139–140)[^17] contends that the balanced scorecard concentrates on efficiency as opposed to effectiveness which allows a balance between the two that can be communicated to all stakeholders in the organisation.
Crafting and Execution of Strategy
Crafting Strategy
Crafting strategies will vary between organisations and can be very dependent on size. Either way, it is a complex process that Thompson et al. (2022 p. 38)[^18] consider involves four areas: Corporate, Business, Functional and Operating.
Corporate strategy is about deciding which businesses or markets a company should operate in. Business strategy is about deciding how a company should compete in each of those businesses or markets. For a single business enterprise, which only operates in one business or market, there is no need to have separate corporate and business strategies. They can be merged into one strategy that covers both aspects.
However, even if a company is a single business enterprise, it might benefit from being aware of other businesses or markets that could complement or enhance its own operation. This is called strategic synergy, which means that two or more businesses or markets can create more value together than separately. For example, a single business enterprise that sells coffee might want to be aware of other businesses that sell pastries, snacks, or books, because they could create strategic synergy by offering a more complete and attractive service to customers. (ChatGPT 2023)[^20].
Execution of Strategy
Once strategy has been crafted, the next step is to put it into action. It is admirable to go through the process of stategic planning, but pointless if it is not executed.
There are a number of tasks involved in the execution of strategy (Thompson et al. 2022, p. 39)[^21] :
- Creating a strategy-supporting structure.
- Staffing the organisation to obtain needed skills and expertise.
- Developing and strengthening strategy-supporting resources and capabilities.
- Allocating ample resources to those activities critical to strategic success.
- Ensuring that policies and procedures facilitate effective strategy execution.
- Organising the work effort along the lines of best practice.
- Installing information and operating systems that enable company personnel to perform essential activities.
- Motivating people and tying rewards directly to the achievement of performance objectives.
- Creating a company culture conducive to successful strategy implementation and execution.
- Exerting the internal leadership needed to propel strategy implementation forward.
Implementation of the strategy involves putting the resources in place with processes and people to facilitate the execution of the strategy. Implementation will be discussed in greater detail later.
Harvard Business Review (2016)[^22] state that there are five myths about strategy execution and the solutions often applied:
- Myth#1: Execution equals alignment—————–Problem: Managers focus on the hierarchy
- Myth#2: Execution means sticking to the plan——-Problem: You can’t anticipate everything
- Myth #3: Communication equals understanding —-Problem: People don’t get strategy
- Myth #4: A performance culture drives execution.—Problem: We focus too much on hitting the numbers
- Myth #5: Execution should be driven from the top.–Problem: Middle managers don’t learn to lead.
Source: Harvard Business Review (2016)
Monitoring and Evaluation
Monitoring of strategy implementation is essential so that the performance can be considered and adjustments made if necessary. It would be most unusual that any change in the vision would be required unless there have been quite unusual external circumstances occur which may require the organisation to pivot. Monitoring provides the information to address problems before they become crises.
Conclusion
This first module has laid the groundwork for strategic management and has covered several key concepts. The subject of strategy has been discussed and definitions applied to provide structure around the concepts. In addition, the necessity of core values, mission and vision statements has also been covered and it has been identified that these form the basis of the strategic objectives. All objectives need to be in alignment with these three statements. Finally, the module discussed the crafting and execution of strategy.
References
[^1]: Porter, ME 1996, ‘What Is strategy?’, Harvard Business Review, vol. 74, no. 6, pp. 61-78.
[^2]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^3]: Favaro, K 2015, ‘Defining strategy, implementation, and execution’, Harvard Business Review Digital Articles, pp. 2-5.
[^4]: Porter, ME 1996, ‘What Is strategy?’, Harvard Business Review, vol. 74, no. 6, pp. 61-78.
[^5]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^6]: Porter, ME 1996, ‘What Is strategy?’, Harvard Business Review, vol. 74, no. 6, pp. 61-78.
[^7]: The Body Shop 2022, Community Trade Fair, viewed 24 November 2022, https://www.thebodyshop.com/en-gb/about-us/brand-values/community-fair-trade/a/a00009.
[^8]: Gamble, JE, Thompson, AA & Margaret Ann Peteraf 2021, Essentials of strategic management the quest for competitive advantage, New York Mcgraw-Hill Education.
[^9]: Favaro, K 2015, ‘Defining strategy, implementation, and execution’, Harvard Business Review Digital Articles, pp. 2-5.
[^10]: Favaro, K 2015, ‘Defining strategy, implementation, and execution’, Harvard Business Review Digital Articles, pp. 2-5.
[^11]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^12]: Bowen, S 2021, ‘Mission and vision’, in The encyclopedia of strategic communication, Wiley, Hoboken.
[^13]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^14]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^15]: Murray-Webster, R 2010, Management of risk: Guidance for practitioners, 3rd edn, Stationary Office, London.
[^16]: Hasan, RU & Chyi, TM 2017, ‘Practical application of Balanced Scorecard-A literature review’, Journal of Strategy and Performance Management, vol. 5, no. 3, p. 87.
[^17]: Paton, R 2003, Managing and measuring social enterprises, SAGE, London.
[^18]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^19]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases_, 23rd edn, McGraw-Hill, New York.
[^20]: ChatGPT 2023
[^21]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases_, 23rd edn, McGraw-Hill, New York.
[^22]: Harvard Business Review 2016, Cornerstones of successful execution [Why strategy unravels – and what to do about it], HBR video, viewed 24 November 2022, https://hbr.org/video/5143339694001/why-strategy-execution-unravelsand-what-to-do-about-it.
