STRATEGIC MANAGEMENT

Strategic Management



Strategic Management

Introduction

Strategic management is seen to have been founded in the 1950s and 1960s in the United States. It is there that the Ford and Carnegie reports on the standardization of business school curricula recommended a capstone course in “business policy” that would consider how the many functional activities of a firm could be best organized as a whole. And it is there that the first strategic management experts or gurus were identified (Ansoff, 2004).

Alfred Chandler's Strategy and Structure is credited with providing the classic definition of strategic management: 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. Igor Ansoff's Corporate Strategy, the first book devoted solely to the subject, cites the field's inheritance from military practice and Von Neumann and Morgenstern's work on game theory and defines strategy as a rule for making decisions pertaining to a firm's match to its environment (Andrews, 2002).

Other works considered foundational include Learned and colleagues' Business Policy (where the popular SWOT analysis framework—which seeks to develop a plan or position for a company based on making the most of its strengths and opportunities, while mitigating the effects of its weaknesses and threats—was presented) and Kenneth Andrews's Concept of Corporate Strategy (Chandler, 2000).

The views of these “founding fathers” are often classified as belonging to the prescriptive or classical schools of thought of strategic management: the planning school, the positioning school, or the design school. Here strategy is about long-term objectives and plans based on an articulation of the company's desired position in the market, a position that matches an organization's strengths and weaknesses to environmental opportunities and threats. These strategic plans or positions are designed by conscious rational analysis at the top, or capstone, of the organization. They are distinct from shorter-term tactical or operational decisions and should be backed up by an implementation plan with distinct and clearly thought-out steps.

The best known proponent of this classical view of strategy is Michael Porter. Porter's frameworks, like Value Chain and Five Forces of Industry, known to every student of business, are still the most widely applied in practical strategy arenas. His key frameworks are briefly described below (Cummings, 2002). Porter's Value Chain focuses attention on how the various parts or functions or a firm combine to add value to what is inputted into the company. Porter's Generic Strategy Matrix combines two axes: competitive advantage (where there are two choices: a cost focus or a differentiation focus) and competitive scope (two choices again: either a broad scope or a narrower focus on a particular niche). This creates a two-by-two matrix containing four generic strategic positions that a firm can choose from: broad cost (e.g., Toyota), broad differentiation (e.g., BMW), focused cost (e.g., Hyundai), or focused differentiation (e.g., Land Rover or Porsche).

Porter's Five Forces of Industry examines how the nature of a particular industry's buyers, suppliers, competitive rivalry, substitutes, and potential for new ...