Strategic Management: Art and Science

• Strategic Management, v3.0 by Dave Ketchen & Jeremy Short

Chapter 1: Mastering Strategy: Art and Science

• Strategic management and strategy, the importance of strategic management, and the components determining company performance are examined
• Learning objectives include:
  • Understanding strategic management
  • Grasping the central question it addresses
  • Recognizing the value of diverse strategy definitions
  • Learning about the 5 Ps of strategy

What is Strategic Management?

• Actions and events involving top executives, companies, and industries are examined for its influence on a company's success or failure
• Aims to answer why some companies outperform others
• Formal tools exist for understanding the relationships involved
• Creativity is vital for strategic management
• Mastering strategy is both an art and a science
• Strategy is a complex concept encompassing many different processes and activities within an organization

The Five Ps of Strategy

• Strategic plan: A carefully planned series of steps a company intends to follow to succeed
  • Business model: Process through which a company aims to make profits
  • Economies of scale: Cost advantage from producing goods or services at a lower per-unit price due to high-volume production
• Strategic ploy: A specific action designed to outwit or trick competitors
• Strategy as pattern: Focuses on the consistency of a company's actions over time
• Strategy as position: Refers to a company's place in the industry relative to competitors
• Strategy as perspective: How executives interpret the competitive environment

Does Planning Make Money?

• A study of 11,000 small companies showed that planning leads to substantial performance improvements for small companies
• Not all companies benefit equally
• Small companies in countries where citizens cope well with uncertainty gain more from planning, compared to those in countries where citizens avoid uncertainty
  • Potentially because one group is more willing to adjust plans over time

Intended and Emergent Strategies

• Intended strategy: The strategy an organization hopes to follow.
  • Detailed in the organization's strategic plan
  • A business plan is a strategic plan for a new venture
• Emergent strategy: An unplanned strategy arising from unexpected events
  • May lead to both successes and disasters

Realized Strategy

• Realized strategy: The strategy an organization actually follows
  • This is a product of a company's intended, deliberate, and emergent strategies
• Nonrealized strategy: Parts of the intended strategy that are abandoned

Strategy in Ancient Times

• The earliest discussion of strategy is in the Old Testament
• The strategist and philosopher Sun Tzu emphasized the creative and deceptive aspects of strategy in ancient China
• The Trojan Horse is the most famous example of strategy in ancient times
  • The term Trojan horse refers to gestures that appear outwardly beneficial but mask a sinister intent
• King Arthur and his Knights of the Round Table exemplifies the concept of mission

Military Strategy Lessons

• Strategy has its origins in warfare
  • The Greek verb strategos, meaning "army leader," refers to defeating an enemy by strategically using resources
• Niccolò Machiavelli’s 1532 book The Prince is an insightful guide for rulers, providing clever recipes for success
• Wars offer lessons in strategic management:
  • American Revolutionary War
  • Civil War
  • World War II
• Do not make any assumptions about the adversary

Modern History of Strategic Management

• 1909: Ford Made its first Classic Model T
• 1911: Frederick W. Taylor Publishes The Principles of Scientific Management
• 1912: Precursor to Modern Strategic Management course at Harvard Business School called "Business Policy"
• 1925: A&W Root Beer becomes America's first franchised restaurant chain
• 1959: The Ford Foundation recommends that business schools integrate knowledge across business fields to solve complex business problems
• 1962: Alfred Chandler publishes Strategy and Structure
• 1962: Sam Walton opens first Walmart location in Arkansas, emphasizing low prices and high levels of customer service
• 1995: Launch of Amazon.com by Jeff Bezos
• 2001: Enron declared bankruptcy following fraud and corruption
• 1980: The Strategic Management Journal is created
• 2005: Thomas Freidman's The World is Flat suggests that firms take advantages in developed countries for granted
• 2021: Tesla becomes one of the world's most valuable companies

Understanding the Strategic Management Process

• Understanding the strategic management process entails learning and understanding the specific components
• Understanding the 4 steps in the strategic management process is essential for effective strategic implementation

Strategic management and strategy are examined, along with the components determining company performance. Mastering strategy involves both art and science. Strategy encompasses diverse processes and activities. The central question is why some companies outperform others.