Business Strategy Concepts and Definitions

Business Strategy

• Presented by Sandra Ramos, 2024/2025
• Introduces the concept of business strategy.

Definitions

• Chandler's definition: The determination of long-run goals and objectives of an enterprise, plus the necessary action courses and resource allocation.
• Porter's definition: Competitive strategy is about being different. Deliberately choosing a different set of activities to deliver a unique mix of value.
• Drucker's definition: A firm's theory about how to gain competitive advantages.
• Mintzberg's definition: A pattern in a stream of decisions.
• Exploring Strategy's definition: The long-term direction of an organization.
• Essential elements, yet different, for various authors: Chandler emphasizes a logical flow from goal setting to resource allocation. Porter focuses on deliberate choices, competition, and differentiation. Drucker views strategy as a framework for a firm's success. Mintzberg acknowledges that strategies don't always follow a linear plan and can emerge organically.

Three elements

• Long-term: Strategies are measured over years (e.g., decades, or more for some organizations).
• Strategic Direction: Strategies follow a long-term orientation or trajectory. They may take time to emerge coherently.
• Organisation: Organizations are complex entities with internal and external relationships involving multiple stakeholders.

Long-Term Orientation

• Advantage 1: Includes deliberate and emergent, incremental aspects.
• Advantage 2: Can be based on the search for competitive advantage, cooperation, or imitation.

Three Horizons Framework

• Horizon 1: Extend and defend core business
• Horizon 2: Build emerging businesses
• Horizon 3: Create viable options

Gaining Competitive Advantage

• Create additional value for customers by offering more than the cost.
• The value creation system (business model) should be difficult for competitors to imitate.
• A company without a unique strategy is essentially following a similar strategy as competitors.

Allocation of Resources

• Resources include financial, human, physical, technological, commercial, or relational.
• Strategists need to allocate appropriate resource mixes to promising activities.
• Strategic decisions must be difficult to reverse. Changing strategy every few months indicates a lack of a true strategy.

VIP Model

• Value: On what value creation model is performance based? (What business model is used?)
• Imitation: How can you avoid competitors copying your value creation model? How can you ensure long-term advantage?
• Perimeter: What is the perimeter of this value creation model? What markets should you go into and what markets should you avoid? What aspects of the value chain?

Purpose of Strategy: Mission, Vision, Values and Objectives

• Strategists: Must define and express a clear and motivating purpose.
• Purpose: Clearly defines how the organization makes a difference (for stakeholders).
• Mission Statement: Aims to provide clarity to employees and stakeholders about the organization's fundamental purpose. (What business are we in? How do we make a difference?)
• Vision Statement: Focuses on the future and aims to motivate people. (What do we want to achieve?)
• Values: These are enduring principles guiding the organization's strategy and operation. They are likely to change with circumstances and need to be communicated well.
• Objectives: Specific outcomes to be achieved, often expressed in precise financial terms (e.g., sales, profits). Can also include quantifiable market-based objectives (e.g., market share) and triple bottom line objectives (economical, environmental and social).

Strategy Statements

• Entrepreneurs and managers should be able to summarize their organization's strategy with a concise statement.
• Key themes include:
  • Fundamental goals (mission, vision, objectives)
  • Scope or domain of activities
  • Advantages or capabilities
• Scope: Customers, geographic location, internal activities/processes.
• Advantage: How an organization achieves objectives, characteristics that distinguish it from competitors (know-how, skills, value to customers/users).
• IKEAs Example: To create a better everyday life for the many people by offering a wide range of well-designed, functional home furnishings at low prices.

Strategy Statements

• Strategy statements are not always fully achieved due to unexpected changes.
• They provide a valuable guide for daily decisions.
• Allows observers to understand the general direction of the organization.
• Ability to provide a clear strategy statement is a good indicator of managerial competence.
• Relevant to various organizations (start-ups, public sector, voluntary organizations).

Levels of Strategy

• 1st Level: Corporate Strategy: Concerns the overall scope of an organization and how value is added to constituent businesses. Includes geographical scope, product diversity, business acquisitions, and resource allocation between different elements.
• 2nd Level: Business-Level Strategy: Focuses on how individual businesses compete in specific markets. Addresses issues like innovation and responding effectively to competitor moves. Includes entrepreneurial start-ups or business units in larger corporations.
• 3rd Level: Functional Strategies: How the company's components (departments, resources, and people) effectively support corporate and business-level strategies.

Exploring Strategy Framework

• Strategic Position: Impact of macro-environment, industry, organizational capabilities, stakeholder expectations, and culture on strategy.
• Strategic Choices: Options for strategy direction and methods.
• Strategy in Action: Forming and implementing strategies.