IB CH 1 BS Textbook Flashcards
Definitions of Strategy
the pattern of decisions that determines and reveals the firm’s objectives, purposes or goals and produces the principle policies and plans for achieving those goals.
- about future direction: a strategy point to where a firm intends to be in the future and how it aims to get there.
- always has a financial impact on the firm.
- should exclude operational issues
5Ps introduced by Henry Mintzberg
- Plan
- Ploy (strategy is seen as a manoeuver; specific behaviour exhibited in order to outwit competitors)
- Pattern (firms sell certain kinds of products and services to certain kinds of markets in certain ways.)
- Position (strategy becomes a mediating force or match between the organization and its environment)
(According to Porter: firms should occupy a position in an industry as either the lowest cost provider or as a company delivering premium value)
- Perspective (a way of seeing and understanding the world shared by all members of an organization; the mission or culture of an organization)
Corporate-level strategy
concerned primarily with answering the question of what set of businesses should we be in. Scope and resource deployments among businesses are the primary components of corporate strategy.
- group of activities or business units (e.g. with Philips with Lighting, consumer electronics, medial systems divisions.)
- additional value should be created from the individual business units
Business level strategy
focuses on how to compete in a particular industry or product-market segment. Distinctive competences and competitive advantage are usually the most important components of strategy at this level
SMEs
Small and medium-sized enterprises
- are single business firms
Strategic plans
is the formulation of intended strategy.
realized strategy
- the patterns of behaviours that a firms displays
- not only the deliberate strategy, but is also emergent
deliberate strategy
planned behaviour
emergent strategy
is more or less spontaneous and unplanned
unexpected opportunities may exist not accounted for in the plans etc.
Two activities of strategic management
- formulating strategy
- implementing strategy
Strategic management is an organizational function (but not always has a department)
formulating strategy
deciding on where the organization intends to be in the future and how it aims at to get there
implementing strategy:
making sure decisions are implemented and checking whether they have the desired consequence
Three dimensions of strategic management
- the process of strategy formation
- the content of a strategy
- the context in which strategy is formulated and implemented
Strategy process
- is the means by which the strategy will be developed and achieved
- How is strategy being formulated?
- how should it be?
- how is it implemented and changed?
- who is involved?
- when should necessary actions take place?
Strategy content
- the product of a strategy
- it states the main actions of the proposed strategy
- What is or should be the strategy of the company?
(e. g. reposition firm within its industry; enter emerging product-markets; move to an e-business model)
Strategy context
- the environment in which the strategy is developed
Where?
- in which type of business environment are strategy process and content determined?
- strategic context –> (influences) strategy content and strategy process
prescriptive theories
concerned with what managers and organizations should be doing in oder to gain success.
(Underlay the work of strategy consulting companies as McKinsey and the Boston Consulting Group)
descriptive theories
formulated by academics in order to describe, understand and possibly predict the behaviour of people and organizations.
(Based on evidence found in academic research)
Prescriptive Schools of thought
- the design school
- the planning school
- the positioning school
The Design School
Firms must create a fit with their business environment and success is created in the firm by designing internal properties
- most influential school
- the design school focuses on producing a fit between an organization and its environment
- internal capabilities of the firm must be matched to the external possibilities in the business environment.
- strategy is envisioned as a process of internal and external analysis followed by strategy formulation, evaluation and implementation
- -> strategy is unique to a specific firm
- a key achievement of the design school is the famous SWOT matrix
- -> builds on the idea that internal properties of the firm must be designed so as to optimally exploit opportunities and neutralize threats in the environment.
Critique of the design school
its suggestion that strategy should always be based on conscious thought and analysis, which denies the possibility for spontaneously emerging strategies
SWOT matrix
that confronts Strengths and Weaknesses with Opportunities and Threats
The Planning School
Strategic planning should be formalized and carried out by specialists
- adopts the main ideas of the design school, thereby lifting planning to become the goal in itself
- strategic planning must be carried out by educated teams of strategists and planners and the amount time and effort invested can never be too much.
- formalization of goals into objectives, the crafting of strategies to bridge the gap between objectives and actual performance, and finally the implementation and evaluation of the strategy.
- specially assigned planners and top management are the ‘architects’ of strategies
- strategies are supported by extensive internal and external audits (checklists, diagrams…)
Critique of the planning school
- the planning school focuses not so much on the content, but on the process of strategy so the numbers
- many point out that this does not improve the performance of a firm (not flexible)
- it is argued that the planners who make the strategies are disconnected from the people on the floor who actually know the firm best
The Positioning School
Profit is determined by industry properties and analysis leads to selection of favourable position
structure-conduct-performance (SCP)
- basic tenet (Grundsatz) is the notion that the structure of an industry determines the behaviour of firms, which in turn determines the industry’s performance (in terms of the benefits to customers).
- the industries performance in terms of profitability is impacted by the intensity of competition
- asserts that firms must choose one of a limited set of generic (typisch/allgemein) strategies, such as cost leadership or product differentiation, which can be defended against competitors in the industry.
Base discipline of the The Design School
none
Base discipline of the The Planning School
Systems theory, cybernetics
Base discipline of The Positioning School
Industrial organization
Basic premise of the The Design School
Firms must create a fit with their business environment
Basic premise of the The Planning School
Strategic planning should be formalized and carried out by specialists
Basic premise of the The Positioning School
for more comparison look at the table in the book page 16
Profit is determined by industry properties; analysis leads to selection of favourable position
Descriptive Schools of Thought (By whom?, Why?
- formulated by academics in order to describe, understand and predict the behaviour of people and organizations.
- explain how strategy happens in real-life organizations
Which Descriptive Schools of Thought are there? How many?
6
- The Entrepreneurial School
- The Cognitive School
- The Learning School
- The Political School
- The Cultural School
- The Environmental School
The Entrepreneurial School
Keywords: leadership, vision, creative destruction
- creative destruction (“change is the only stability in business”)
- strategies happen because of talented, creative leaders with innovative ideas
- the entrepreneur has vision + power and authority to commit the organization to certain courses of action
The Cognitive School
Strategic actors have bounded rationality
- explains the formation of strategy by looking into the mind of strategists to see how they process information and make decisions
- mental schemas are distorted images of reality (bounded rationality)
- bounded rationality is the acceptance of the fact that humans make mistakes
- distortion occurs due to limited time
The Learning School
Strategy is incremental and emerging
- learning from mistakes
- organizational environment is so complex and unpredictable that the perfect strategy can never be devised
- this incremental (schrittweise) process is called an emerging strategy, as opposed to the deliberate (absichtlich) strategies advocated by the prescriptive schools.
The Political School
Dominant coalitions play out their power positions
- emphasizes the fact of human social life: emotions, dreams, hopes and fears, interests
- politics inside an organization are called micro power issues (organizational members form coalitions to pursue their interests)
- power and interests by the organization is called macro politics
- outcomes of strategy formulation result from negotiation btw. the different interests
The Cultural School
Strategy must fit the firm’s collective values, ideologies
- strategy as a collective process (influenced by organizational culture
- organizational culture (the collective interpretation of the world by the members)
- individuals cannot really put forward their ideas (here the corporate culture stands in the way of changing the firm’s strategy?
The Environmental School
Firms occupy niches and are shaped and selected out by their environment
- if a firm denies the forces of the environment (all factors not only competition), it will be selected out
- population ecology approach (firm as organism trying to maximize fit with the nature in order to increase their chances of survival)
The process of strategy formulation
- based on design and positioning school
- the design school focuses on internal properties of the firm
- the positioning school focuses on the attractiveness of the industry and the market
