Exploring Strategy - Eleventh Edition - PDF

EXPLORING STRATEGY 1 INTRODUCING STRATEGY Strategic Strategic choices...

EXPLORING STRATEGY 1 INTRODUCING STRATEGY Strategic Strategic choices Strategy in action position Learning outcomes After reading this chapter you should be able to: Summarise the strategy of an organisation in a ‘strategy statement ’. Distinguish between corporate, business and functional strategies. Identify key issues for an organisation’s strategy according to the Exploring Strategy Framework. Understand different people’s roles in strategy work. Appreciate the importance of different organisational contexts, academic disciplines and theoretical lenses to practical strategy analysis. Key terms business-level strategy p.11 strategic position p.12 corporate-level strategy p.10 strategy p.4 Exploring Strategy Framework p.11 strategy in action p.14 functional strategies p.11 strategy lenses p.21 mission statement p.7 strategy statements p.8 objectives p.8 three-horizons framework p.6 statements of corporate values p.8 vision statement p.8 strategic choices p.13  INTRODUCTION 1.1 INTRODUCTION Claudia, a junior at a leading firm of strategy consultants, had just arrived with two senior colleagues at the headquarters of a medium-sized company considering its next strategic move. The CEO began the meeting by outlining the business the company was in and some of the history behind the firm’s significant success in European markets. The recent entry into Europe of new aggressive competitors threatened their perfor- mance and the Board was wondering whether the company should globalise. The CEO then asked how the consultants might approach this problem. The consulting partner explained they would carry out a systematic strategic analysis of the company’s situa- tion and Claudia knew this would be her responsibility – to gather and analyse appro- priate data. She would need to understand how the company had been so successful to date, the challenge posed by competitors and the broader opportunities and threats from the wider environment. She knew she could access key company executives to understand what resources, processes and people were supporting the current strategy and also what might support international expansion. She would have to consider the direction in which the business might expand, the methods of expansion that might be most appropriate as well as other strategic options. Through this analysis, she would hope to inform the CEO’s decision about what the strategy for the company might be and perhaps gain further work to help implement a strategic direction. The problem presented by the CEO to the consultants is one of strategy. It is concerned with key issues for the future of the organisation. For instance, how should the company compete in the future with aggressive new entrants? What growth options are there for the company? If going global is a good strategy, what would be the optimal method to achieve this outcome and what might be the resourcing implications? All of these strategy questions are vital to the future survival of the organisation. Strategy questions naturally concern entrepreneurs and senior managers at the top of their organisations. But these questions matter more widely. Middle managers also have to understand the strategic direction of their organisations, both to know how to get top man- agement support for their initiatives and to explain their organisation’s strategy to the people they are responsible for. Anybody looking for a management-track job needs to be ready to discuss strategy with their potential employer. Indeed, anybody taking a job should first be confident that their new employer’s strategy is actually viable. There are even specialist career opportunities in strategy, for example like Claudia, as a strategy consultant or as an in-house strategic planner, often key roles for fast-track young managers. This book takes a broad approach to strategy, looking at both the economics of strategy and the people side of managing strategy in practice. It is a book about ‘Exploring’, because the real world of strategy rarely offers obvious answers. In strategy, it is typically important to explore several options, probing each one carefully before making choices. The book is also relevant to any kind of organisation responsible for its own direction into the future. Thus the book refers to large private-sector multinationals and small entrepreneurial start- ups; to public-sector organisations such as schools and hospitals; and to not-for-profits such as charities or sports clubs. Strategy matters to almost all organisations, and to everybody working in them. 3 CHAPTER 1 INTRODUCING STRATEGY 1.2 WHAT IS STRATEGY?1 In this book, strategy is the long-term direction of an organisation. Thus the long-term direction of Amazon is from book retailing to internet services in general. The long-term direction of Disney is from cartoons to diversified entertainment. This section examines the practical implication of this definition of strategy; distinguishes between different levels of strategy; and explains how to summarise an organisation’s strategy in a ‘strategy statement’. 1.2.1 Defining strategy Defining strategy as the long-term direction of an organisation implies a more comprehen- sive view than some influential definitions. Figure 1.1 shows the strategy definitions of sev- eral leading strategy theorists: Alfred Chandler and Michael Porter, both from the Harvard Business School, Peter Drucker from Claremont University, California and Henry Mintzberg, from McGill University, Canada. Each points to important elements of strategy. Chandler emphasises a logical flow from the determination of goals and objectives to the allocation of resources. Porter focuses on deliberate choices, difference and competition. Drucker sug- gests that it is a theory about how a firm will win.2 Mintzberg, however, takes the view that strategy is less certain and uses the word ‘pattern’ to allow for the fact that strategies do not always follow a deliberately chosen and logical plan, but can emerge in more ad hoc ways. Sometimes strategies reflect a series of incremental decisions that only cohere into a recog- nisable pattern – or ‘strategy’ – after some time. In this book, strategy is defined as ‘the long-term direction of an organisation’. This has two advantages. First, the long-term direction of an organisation can include both deliber- ate, logical strategy and more incremental, emergent patterns of strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strate- gies that recognise the roles of cooperation and even imitation. The three elements of this strategy definition – the long term, direction and organisation – can each be explored further. The strategy of Tesla Motors illustrates impor- tant points (see Illustration 1.1): ‘...the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’ Alfred D. Chandler ‘Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value’ Michael Porter ‘a firm’s theory about how to ‘a pattern in a stream of ‘the long-term direction of an gain competitive advantages’ decisions’ organisation’ Peter Drucker Henry Mintzberg Exploring Strategy Figure 1.1 Definitions of strategy Sources: A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13; M.E. Porter, ‘What is strategy?’, Harvard Business Review, November–December 1996, p. 60; P.F. Drucker, ‘The theory of business’, Harvard Business Review, September–October 1994, pp. 95–106; H. Mintzberg, Tracking Strategies: Towards a General Theory, Oxford University Press, 2007, p. 3. 4  WHAT IS STRATEGY? ILLUSTRATION 1.1 Tesla Motors: the future is electric! The founders had no experience making cars, but real- ised car companies now outsourced everything, even styl- ing. Manufacturing partners were ready to be connected with; a ‘fab-less’ car company was possible.3 Production began 2008. The business plan described the Roadster as ‘disruptive’ technology1 – a high-end sports car with lower price and emissions than competitors – and a lower resource cost to the planet. Roadster 0–60 mph < 3.9 seconds; 100mpg; world-class handling; zero tailpipe emissions; 300 mile range; Tesla car zero maintenance for 100,00 miles (other than Source: Jim West/Alamy Images. tyres); 50% price of the cheapest competitive sports car.1 The Tesla Roadster is a staggeringly quick car with a dif- ference. There’s no wheel-spin, no traction control stutter, no driveline shutter. As soon as one stamps on the throttle Tesla’s strategy was: the driver gets 686 lbs of torque immediately, rocketing to enter at the high end of the market, where custom- the car from 0–60 mph in 3.2 seconds and with negligible ers are prepared to pay a premium, and then drive noise – the car is electric. down market as fast as possible to higher unit volume The Tesla Roadster is the main product of Tesla Motors. Its charismatic chairman and main funder is PayPal and lower prices with each successive model.... all co-founder, and SpaceX CEO, Elon Musk. Barely a dec- free cash flow is plowed back into R&D to drive down ade old, Tesla Motors is already gigantic, $33bn (£20bn, the costs and bring the follow on products to market €25bn) market capitalisation and adored. It’s been called as fast as possible. When someone buys the Tesla ‘the world’s most important automotive company’1 and the Roadster sports car, they are actually helping pay for Tesla’s Model S, ‘the Most Loved Vehicle in America’1 – out- development of the low cost family car.2 selling Mercedes S-class and BMW 7 series. And yet the last successful American car start-up was Ford, founded 111 Tesla aimed to provide zero emission electric power gen- years ago. How can Tesla Motors be so successful? eration from their ‘giga’ battery factory in line with their Tesla is the brain-child of three Silicon Valley engineers ‘overarching purpose... to help expedite the move from convinced by global warming arguments and looking for a mine-and-burn hydrocarbon economy towards a solar alternative fuel sources for cars. Co-founder Martin Eber- electric economy.’2 In 2015, Tesla Energy was launched hard asked: ‘How much of the energy that comes out of the selling batteries for home and business use. ground makes your car go a mile?’1 He observed: ‘Hydro- Edison didn’t invent the light bulb, but he made it gen fuel cells are terrible – no more efficient than gas. affordable and accessible through his electric system.3 Electric cars were superior to everything.’1 He then discov- Tesla is also offering an energy system for a world of elec- ered a bright yellow, all-electric, two-seater bullet car with tric vehicles, homes and businesses, using batteries. zero emissions, ‘tzero’, built by AC propulsion. Inspired, Sources : (1) E. Musk, ‘The Secret Tesla Motors Master Plan (just Eberhard kept saying to potential recruits – ‘try and touch between you and me)’, 2 August 2006; (2) D. Baer, ‘The making of Tesla: invention, betrayal, and the birth of the Roadster’, Business the dashboard.’1 He would then hit the accelerator – they Insider, 11 November 2014; (3) J. Suskewicz, ‘Tesla’s new strategy is couldn’t! With Lamborghini-level acceleration, this demon- over 100 years old’, Harvard Business Review, May 2015. strated electric cars didn’t have to be golf carts. But industry logic said electric cars would never suc- ceed. GM spent $1bn (£0.6bn, €0.75bn), developing the Questions EV-1 which was then scrapped. Battery technology had not improved in a hundred years. But Eberhard realised 1 How does Tesla Motor’s strategy fit with the lithium-ion batteries were different – improving 7 per cent various strategy definitions in Figure 1.1? p.a. So Tesla was positioned to ride the current of tech- 2 What seems to account for Tesla’s success? nological history. 5 CHAPTER 1 INTRODUCING STRATEGY The long term. Strategies are typically measured over years, for some organisations a decade or more. The importance of a long-term perspective on strategy is emphasised by the ‘three horizons’ framework in Figure 1.2. The three-horizons framework suggests organisations should think of themselves as comprising three types of business or activity, defined by their ‘horizons’ in terms of years. Horizon 1 businesses are basically the current core activities. In the case of Tesla Motors, Horizon 1 includes the original Tesla Roadster car and subsequent models. Horizon 1 businesses need defending and extending, but the expectation is that in the long term they will likely be flat or declining in terms of profits (or whatever else the organisation values). Horizon 2 businesses are emerging activities that should provide new sources of profit. For Tesla, that might include the new mega-bat- tery business. Finally, there are Horizon 3 possibilities, for which nothing is sure. These are typically risky research and development (R&D) projects, start-up ventures, test-market pilots or similar: at Tesla, these might be further solar electric initiatives, rockets and space transportation. For a fast-moving organisation like Tesla, Horizon 3 might generate profits a few years from the present time. In a pharmaceutical company, where the R&D and regulatory processes for a new drug take many years, Horizon 3 might be a decade ahead. While timescales might differ, the basic point about the ‘three-horizons’ framework is that managers need to avoid focusing on the short-term issues of their existing activities. Strategy involves pushing out Horizon 1 as far as possible, at the same time as looking to Horizons 2 and 3. Strategic direction. Over the years, strategies follow some kind of long-term direction or trajectory. The strategic direction of Tesla Motors is from the original electric car to a diversified set of solar power offerings. Sometimes a strategic direction only emerges as a coherent pattern over time. Typically, however, managers and entrepreneurs try to set the direction of their strategy according to long-term objectives. In private-sector businesses, the objective guiding strategic direction is usually maximising profits for shareholders. However, profits do not always set strategic direction. First, public-sector and charity organisations may set their strategic direction according to other objectives: for example, a sports club’s objective may be to move up from one league to a higher one. Second, even in the private sector profit is not always the sole criterion for strategy. Thus family Profit potential Figure 1.2 Three horizons for strategy Note: ‘profit’ on the vertical axis can be replaced by non-profit objectives; ‘business’ can refer to any set of activities; ‘time’ can refer to a varying number of years. Source: M. Baghai, S. Coley and D. White, The Alchemy of Growth, Texere Publishers, 2000, Figure 1.1, p. 5. 6  WHAT IS STRATEGY? businesses may sometimes sacrifice the maximisation of profits for family objectives, for example passing down the management of the business to the next generation. The objectives behind strategic direction always need close scrutiny. Organisation. In this book, organisations are not treated as discrete, unified entities. Organisations involve many relationships, both internally and externally. This is because organisations typically have many internal and external stakeholders, in other words peo- ple and groups that depend on the organisation and upon which the organisation itself depends. Internally, organisations are filled with people, typically with diverse, competing and more or less reasonable views of what should be done. At Tesla, co-founder and orig- inal CEO Martin Eberhard was fired by new Chairman Elon Musk. In strategy, therefore, it is always important to look inside organisations and to consider the people involved and their different interests and views. Externally, organisations are surrounded by important relationships, for example with suppliers, customers, alliance partners, regulators and investors. For Tesla, relationships with investors and advertisers are crucial. Strategy there- fore is also vitally concerned with an organisation’s external boundaries: in other words, questions about what to include within the organisation and how to manage important relationships with what is kept outside. Because strategy typically involves managing people, relationships and resources, the sub- ject is sometimes called ‘strategic management’. This book takes the view that managing is always important in strategy. Good strategy is about the practicalities of managing as well as the analysis of strategising. 1.2.2 The purpose of strategy: mission, vision, values and objectives What is a strategy for? Harvard University’s Cynthia Montgomery3 argues that the core of a strategist’s job is defining and expressing a clear and motivating purpose for the organisation. Even for private-sector organisations this is generally more than simple profit-maximisation as long-term prosperity and employee motivation usually require expressions of purpose that go beyond just profits. According to Montgomery, the stated purpose of the organisation should address two related questions: how does the organisation make a difference; and for whom does the organisation make that difference? If the stakeholders of an organisation can relate to such a purpose it can be highly motivating. Indeed, research by Jim Collins and Jerry Porras suggests that the long-run success of many US corporations – such as Disney, General Electric or 3M – can be attributed (at least in part) to the clear guidance and moti- vation offered by such statements of purpose.4 There are four ways in which organisations typically define their purpose: A mission statement aims to provide employees and stakeholders with clarity about what the organisation is fundamentally there to do. This is often expressed in the apparently simple but challenging question: ‘What business are we in?’ Two linked questions that can clarify an organisation’s ‘business’ are: ‘What would be lost if the organisation did not exist?’; and ‘How do we make a difference?’ Though they do not use the term ‘mission statement’, Collins and Porras5 suggest that understanding the fundamental mission can be done by starting with a descriptive statement of what the organisation actually does, then repeatedly delving deeper into the organisation purpose by asking ‘why do we do this?’ They use the example of managers in a gravel and asphalt company arriving at the conclusion that its mission is to make people’s lives better by improving the quality of built 7 CHAPTER 1 INTRODUCING STRATEGY structures. At Southampton University the mission includes educating students, training the next generation of researchers and addressing social issues. A vision statement is concerned with the future the organisation seeks to create. The vision typically expresses an aspiration that will enthuse, gain commitment and stretch perfor- mance. So here the question is: ‘What do we want to achieve?’ Porras and Collins suggest managers can identify this by asking: ‘If we were sitting here in twenty years what do we want to have created or achieved?’ They cite the example of Henry Ford’s original vision in the very early days of automobile production that the ownership of a car should be within the reach of everyone. For the Swedish music site Spotify, the vision is to become ‘the Operating System of music’, a universal platform for listening just as Microsoft is for office software. Statements of corporate values communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate. For example, Alphabet (previously Google) famously includes in its values ‘you can be serious without a suit’, ‘fast is better than slow’ and ‘don’t be evil’. It is important that these values are enduring, so a question to ask is: ‘Would these values change with circumstances?’ And if the answer is ‘yes’ then they are not ‘core’ and not ‘enduring’. An example is the importance of leading-edge research in some universities. Whatever the constraints on funding, such universities hold to the enduring centrality of research. On the other hand, as Alphabet has grown and diversified, some critics wonder whether the company still abides by its principle of ‘don’t be evil’ (see Chapter 13 end case). Objectives are statements of specific outcomes that are to be achieved. These are often expressed in precise financial terms, for instance, the level of sales, profits or share valuation in one, two or three years’ time.6 Organisations may also have quantifiable market-based objectives, such as market share, customer service, repeat business and so on. Sometimes objectives focus on the basis of competitive advantage: for example, low- cost airlines such as RyanAir set objectives on turnaround time for their aircraft because this is at the core of their distinctive low-cost advantage. Increasingly, organisations are also setting objectives referred to as ‘the triple bottom line’, by which is meant not only economic objectives such as those above, but also environmental and social objectives to do with their corporate responsibility to wider society (see Section 5.4.1). Although visions, missions and values may be liable to become bland and too wide-ranging,7 they can offer more enduring sources of direction and motivation than the concrete nature of objectives. It is therefore crucial that vision, mission and values are meaningful when included in strategy statements. 1.2.3 Strategy statements David Collis and Michael Rukstad8 at the Harvard Business School argue that all entrepre- neurs and managers should be able to summarise their organisation’s strategy with a ‘strat- egy statement’. Strategy statements should have three main themes: the fundamental goals (mission, vision or objectives) that the organisation seeks; the scope or domain of the organ- isation’s activities; and the particular advantages or capabilities it has to deliver all of these. Mission, vision and objectives have been described in Section 1.2.2 so here we concen- trate on the other two main themes, scope and advantage, with examples of all five given in Illustration 1.2: Scope. An organisation’s scope or domain refers to three dimensions: customers or clients; geographical location; and extent of internal activities (‘vertical integration’). For a uni- versity, scope questions are two-fold: first, which academic departments to have (a business 8  WHAT IS STRATEGY? ILLUSTRATION 1.2 Strategy statements Both Samsung Electronics, the Korean telecommunications, computing and TV giant, and Southampton University, a leading British university, publish a good deal about their strategies. Samsung Electronics A reputation for delivering excellence and an exemplary student experience will lead to greater demand from At Samsung, we follow a simple business philosophy: the best student applicants, sustained support from to devote our talent and technology to creating supe- research funders and strong support from our alumni. rior products and services that contribute to a better We aim to achieve: global society. Every day, our people bring this philosophy to life. Our 1 Collegiality: providing excellent staff experience, leaders search for the brightest talent from around the improving management and leadership through- world, and give them the resources they need to be the out, developing agile governance, increasing risk best at what they do. The result is that all of our products appetite. – from memory chips that help businesses store vital 2 Internal quality: improve student experience to knowledge to mobile phones that connect people across amongst the best in the UK’s National Student continents – have the power to enrich lives. And that’s Survey, develop high quality systems and infra- what making a better global society is all about. structure, improve quality of research applica- As stated in its new motto, Samsung Electronics’ tions, develop £5m+ strategic partnerships, vision [...] is, ‘Inspire the World, Create the Future’. raise admission standards, increase international This new vision reflects Samsung Electronics’ com- student numbers, improve student employability, mitment to inspiring its communities by leveraging recruit and retain high quality staff. Samsung’s three key strengths: ‘New Technology’, ‘Innovative Products’ and ‘Creative Solutions’. As part of 3 National and international recognition: improve this vision, Samsung has mapped out a specific plan of league table rankings and reputation, improve reaching $400 billion in revenue and becoming one of quality of education, grow international alumni the world’s top five brands by 2020. To this end, Sam- community, deliver impactful research. sung has also established three strategic approaches in 4 Sustainability: deliver the ability to invest, develop its management: ‘Creativity’, ‘Partnership’ and ‘Talent’. sustainable smooth income, improve research As we build on our previous accomplishments, overhead recovery, improve productivity, increase we look forward to exploring new territories, includ- revenue from other sources. ing health, medicine, and biotechnology. Samsung is Sources: Edited extract from the University of Southampton Simply committed to being a creative leader in new markets, Better: The University Strategy, www.southampton.ac.uk. becoming No. 1 business in the Global IT industry and in the Global top 5. Questions Southampton University strategy 1 Construct short strategy statements covering The university’s core mission is to change the world the goals, scope and advantage of Samsung for the better. It is an exceptional place whose peo- and the Southampton University. How much ple achieve remarkable things. We are a world-leading, do the different private- and public-sector research-intensive university, with a strong educational contexts matter? offering, renowned for our innovation and enterprise. 2 Construct a strategy statement for your Our strategy is about our aspirations – building our rep- own organisation (university, sports club utation and being simply better than our competitors. or employer). What implications might We will increase our rankings to be in the top 10 this statement have for change in your (UK) and top 100 internationally. This will increase organisation? our reputation, which will increase our ranking. 9 CHAPTER 1 INTRODUCING STRATEGY school, an engineering department and so on); second, which activities to do internally themselves (vertically integrate) and which to externalise to subcontractors (for example, whether to manage campus restaurants in-house or to subcontract them). Advantage. This part of a strategy statement describes how the organisation will achieve the objectives it has set for itself in its chosen domain. In competitive environments, this refers to the competitive advantage: for example, how a particular company or sports club will achieve goals in the face of competition from other companies or clubs. In order to achieve a particular goal, the organisation needs to be better than others seeking the same goal. In the public sector, advantage might refer simply to the organisation’s capa- bility in general. But even public-sector organisations frequently need to show that their capabilities are not only adequate, but superior to other rival departments or perhaps to private-sector contractors. Collis and Rukstad suggest that strategy statements covering goals, scope and advantage should be no more than 35 words long. The three themes are deliberately made highly concise. Brevity keeps such statements focused on the essentials and makes them easy to remember and communicate. Thus for Tesla, a strategy statement might be: ‘To accelerate the advent of a sustainable solar economy by developing and incorporating superior battery-based technologies into compelling mass market electric products and bringing them to market as soon as possible.’ The strategy statement of Swedish multinational group IKEA is a little more specific: ‘To create a better everyday life for the many people [by offering] a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ Of course, such strategy statements are not always fulfilled. Circumstances may change in unexpected ways. In the meantime, however, they can provide a useful guide both to managers in their decision-making and to employees and others who need to understand the direction in which the organisation is going. The ability to give a clear strategy statement is a good test of managerial competence in an organisation. As such, strategy statements are relevant to a wide range of organisations. For example, a small entrepreneurial start-up can use a strategy statement to persuade investors and lenders of its viability. Public-sector organisations need strategy statements not only for themselves, but to reassure clients, funders and regulators that their priorities are the right ones. Vol- untary organisations need persuasive strategy statements in order to inspire volunteers and donors. Thus organisations of all kinds frequently publish materials relevant to such strategy statements on their websites or annual reports. Illustration 1.2 provides published materials on the strategies of two very different organisations: the technology giant Samsung from the private sector and Southampton University in the UK from the public sector. 1.2.4 Levels of strategy So far we have considered an organisation as a whole, but inside an organisation, strategies can exist at three main levels. Corporate-level strategy is concerned with the overall scope of an organisation and how value is added to the constituent businesses of the organisational whole. Corporate-level strategy issues include geographical scope, diversity of products or services, acquisitions of new businesses, and how resources are allocated between the different elements of the organisation. For Tesla, moving from car manufacture to battery production for homes and businesses is a corporate-level strategy. Being clear about corporate-level strategy is important: determining the range of businesses to include is the basis of other strategic decisions, such as acquisitions and alliances. 10  THE EXPLORING STRATEGY FRAMEWORK Business-level strategy is about how the individual businesses should compete in their particular markets (this is often called ‘competitive strategy’). These might be stand-alone businesses, for instance entrepreneurial start-ups, or ‘business units’ within a larger cor- poration. Business-level strategy typically concerns issues such as innovation, appropriate scale and response to competitors’ moves. For Tesla this means rolling out a lower cost electric car to build volume and capture market share in advance of potential competitor entry. In the public sector, the equivalent of business-level strategy is decisions about how units (such as individual hospitals or schools) should provide best-value services. Where the businesses are units within a larger organisation, business-level strategies should clearly fit with corporate-level strategy. Functional strategies are concerned with how the components of an organisation deliver effectively the corporate- and business-level strategies in terms of resources, processes and people. For example, Tesla continues to raise external finance to fund its rapid growth: its functional strategy is partly geared to meeting investment needs. In most businesses, suc- cessful business strategies depend to a large extent on decisions that are taken, or activities that occur, at the functional level. Functional decisions need therefore to be closely linked to business-level strategy. They are vital to successful strategy implementation. This need to link the corporate, business and functional levels underlines the importance of integration in strategy. Each level needs to be aligned with the others. The demands of integrating levels define an important characteristic of strategy: strategy is typically complex, requiring careful and sensitive management. Strategy is rarely simple. 1.3 THE EXPLORING STRATEGY FRAMEWORK This book is structured around a three-part framework that emphasises the interconnected nature of strategic issues. The Exploring Strategy Framework includes understanding the stra- tegic position of an organisation; assessing strategic choices for the future; and managing strategy in action. Figure 1.3 shows these elements and defines the broad coverage of this book. Together, the three elements provide a practical template for studying strategic situ- ations. The following sections of this chapter will introduce the strategic issues that arise under each of these elements of the Exploring Strategy Framework. But first it is important to understand why the framework is drawn in this particular way. Figure 1.3 could have shown the framework’s three elements in a linear sequence – first understanding the strategic position, then making strategic choices and finally turning strat- egy into action. Indeed, this logical sequence is implicit in the definition of strategy given by Alfred Chandler (Figure 1.1) and many other textbooks on strategy. However, as Henry Mintzberg recognises, in practice the elements of strategy do not always follow this linear sequence. Choices often have to be made before the position is fully understood. Sometimes too a proper understanding of the strategic position can only be built from the experience of trying a strategy out in action. The real-world feedback from launching a new product is often far better at uncovering the true strategic position than remote analysis carried out in a strategic planning department at head office. The interconnected circles of Figure 1.3 are designed to emphasise this potentially non-linear nature of strategy. Position, choices and action should be seen as closely related, and in practice none has priority over another. It is only for structural convenience that this book divides its subject matter into three sections; the book’s sequence is not meant to suggest that the process of strategy must follow a logical series of distinct steps. The three 11 CHAPTER 1 INTRODUCING STRATEGY Macro- environment Industry Stakeholders Strategic position Resources Culture Business Evaluating strategy Corporate International Processes Organising strategy Strategic Strategy choices in action Entrepreneur- Acquisitions Leadership ship & alliances Practice & change Figure 1.3 The Exploring Strategy Framework circles are overlapping and interdependent. The evidence provided in later chapters will suggest that strategy rarely occurs in tidy ways and that it is better not to expect it to do so. However, the Exploring Strategy Framework does provide a comprehensive and integrated schema for analysing an organisation’s position, considering the choices it has and put- ting strategies into action. Each of the chapters can be seen as asking fundamental strategy questions and providing the essential concepts and techniques to help answer them. Work- ing systematically through questions and answers provides the basis for persuasive strategy recommendations. 1.3.1 Strategic position The strategic position is concerned with the impact on strategy of the macro-environment, the industry environment, the organisation’s strategic capability (resources and compe- tences), the organisation’s stakeholders and the organisation’s culture. Understanding these five factors is central for evaluating future strategy. These issues, and the fundamental ques- tions associated with them, are covered in the following five chapters of Part I of this book: Macro-environment. Organisations operate in complex multi-level environments. At the macro level, organisations are influenced by political, economic, social, technological, eco- logical and legal forces. The macro-environment varies widely in terms of its dynamism. The fundamental question here relates to the opportunities and threats available to the organisation in complex, changing environments. Chapter 2 provide key frameworks to help in focusing on priority issues in the face of environmental complexity and dynamism. Industry environment. At the industry level of analysis, competitors, suppliers and cus- tomers present challenges to an organisation. A fundamental question is: how can an 12  THE EXPLORING STRATEGY FRAMEWORK organisation manage industry forces? Industry environments can vary widely in their attractiveness and present opportunities and threats. Chapter 3 provides key frameworks to help identify major forces at work in different industries. Strategic capability. Each organisation has its own strategic capabilities, made up of its resources (e.g. machines and buildings) and competences (e.g. technical and managerial skills). The fundamental question on capability regards the organisation’s strengths and weaknesses (for example, where is it at a competitive advantage or disadvantage?). Are the organisation’s capabilities adequate to the challenges of its environment and the demands of its goals? Chapter 4 provides tools and concepts for analysing such resources and capabilities. Stakeholders. There are many actors who hold a ‘stake’ in the future of every organ- isation – not just owners, but employees, customers, suppliers and more. The fourth fundamental question then is: how can the organisation be aligned around a common purpose? An organisation’s key stakeholders should define its purpose. Understanding their different interests to identify this purpose is important. Corporate governance then matters as it translates this purpose into strategy: how to ensure that managers stick to the agreed purpose? Questions of purpose and accountability raise issues of corporate social responsibility and ethics: is the purpose an appropriate one and are managers sticking to it? Chapter 5 provides concepts for addressing these issues of purpose. Culture. Organisational cultures can also influence strategy. So can the cultures of a par- ticular industry or particular country. These cultures are typically a product of an organi- sation’s history. The consequence of history and culture can be strategic drift, a failure to create necessary change. A fundamental question here, therefore, is: how does culture fit with the required strategy? Chapter 6 demonstrates how managers can analyse, challenge and sometimes turn to their advantage the various cultural influences on strategy. The Exploring Strategy Framework (Illustration 1.1) points to the following positioning issues for Tesla Motors. What is the future of the company given the growing social, political, eco- logical and legal demands for businesses to be environmentally sustainable? Are its distinctive capabilities really valued sufficiently by consumers to provide a financial return to investors and to allow sustained investment in further innovative products? How will Tesla cope with rising competition from car industry giants who are now selling electric and hybrid cars? 1.3.2 Strategic choices Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. For instance, an organisation might have a range of strategic directions open to it: the organisation could diversify into new products; it could enter new international markets; or it could transform its existing products and markets through radical innovation. These various directions could be pursued by different methods: the organisation could acquire a business already active in the product or market area; it could form alliances with relevant organisations that might help its new strategy; or it could try to pursue its strategies on its own. Typical strategic choices, and the related fundamental questions, are covered in the five chapters that make up Part II of this book, as follows: Business strategy and models. There are strategic choices in terms of how the organisa- tion seeks to compete at the individual business level. For example, a business unit could choose to be the lowest cost competitor in a market, or the highest quality. The funda- mental question here, then, is what strategy and what business model should a company use to compete? Key dilemmas for business-level strategy, and ways of resolving them, are discussed in Chapter 7. 13 CHAPTER 1 INTRODUCING STRATEGY Corporate strategy and diversification. The highest level of an organisation is typically concerned with issues of corporate scope, in other words, which businesses to include in the portfolio. This relates to the appropriate degree of diversification, with regard to prod- ucts offered and markets served. Corporate-level strategy is also concerned with internal relationships, both between business units and with the corporate head office. Chapter 8 provides tools for assessing diversification strategies and the appropriate relationships within the corporate portfolio. International strategy. Internationalisation is a form of diversification, but into new geo- graphical markets. Here the fundamental question is: where internationally should the organisation compete? Chapter 9 examines how to prioritise various international options and key strategies for pursuing them. Entrepreneurship and innovation. Most existing organisations have to innovate constantly simply to survive. Entrepreneurship, the creation of a new enterprise, is an act of inno- vation too. A fundamental question, therefore, is whether the organisation is innovating appropriately. Chapter 10 considers key choices about innovation and entrepreneurship, and helps in selecting between them. Mergers, acquisitions and alliances. Organisations have to make choices about methods for pursuing their strategies. Many organisations prefer to build new businesses with their own resources. Other organisations develop by acquiring other businesses or forming alli- ances with complementary partners. The fundamental question in Chapter 11, therefore, is whether to buy another company, ally or to go it alone. Again, issues of strategic choice are live in the case of Tesla Motors (Illustration 1.1). The Exploring Strategy Framework asks the following kinds of questions here. Should Tesla continue to produce new higher volume cheaper cars or remain specialised? How far should it widen the scope of its businesses: is producing batteries for homes really helping or detract- ing from car production? Where should Tesla innovate next? 1.3.3 Strategy in action Managing strategy in action is about how strategies are formed and how they are imple- mented. The emphasis is on the practicalities of managing. These issues are covered in the five chapters of Part III, and include the following, each with their own fundamental questions: Strategy performance and evaluation. Managers have to decide whether existing and fore- cast performance is satisfactory and then choose between options that might improve it. The fundamental evaluation questions are as follows: are the options suitable in terms of matching opportunities and threats; are they acceptable in the eyes of significant stake- holders; and are they feasible given the capabilities available? Chapter 12 introduces a range of financial and non-financial techniques for appraising performance and evaluating strategic options. Strategy development processes. Strategies are often developed through formal planning processes. But sometimes the strategies an organisation actually pursues are emergent – in other words, accumulated patterns of ad hoc decisions, bottom-up initiatives and rapid responses to the unanticipated. Given the scope for emergence, the fundamental ques- tion is: what kind of strategy process should an organisation have? Chapter 13 addresses the question of whether to plan strategy in detail or leave plenty of opportunities for emergence. Organising. Once a strategy is developed, the organisation needs to organise for successful implementation. Each strategy requires its own specific configuration of structures and 14  THE EXPLORING STRATEGY FRAMEWORK systems. The fundamental question, therefore, is: what kinds of structures and systems are required for the chosen strategy? Chapter 14 introduces a range of structures and systems and provides frameworks for deciding between them. Leadership and strategic change. In a dynamic world, strategy inevitably involves change. Managing change involves leadership, both at the top of the organisation and lower down. There is not just one way of leading change, however: there are different styles and differ- ent levers for change. So the fundamental question is: how should the organisation man- age necessary changes entailed by the strategy? Chapter 15 therefore examines options for managing change, and considers how to choose between them. Strategy practice. Inside the broad processes of strategy development and change is a lot of hard, detailed work. The fundamental question in managing this work is: who should do what in the strategy process? Chapter 16 thus provides guidance on which people to include in the process; what activities they should do; and which methodologies can help them do it. These kinds of practicalities are a fitting end to the book and essential equip- ment for those who will have to go out and participate in strategy work themselves. With regard to strategy in action, the Exploring Strategy Framework raises the following kinds of questions for Tesla. How will Tesla return value to shareholders going forwards? How will the rate of innovation at Tesla be maintained? Should Tesla move towards a more disciplined strategy development process rather than depend on the vision of Elon Musk? Does Tesla need more structure and systems? As Tesla grows, how should any changes that may be necessary be managed? Thus the Exploring Strategy Framework offers a comprehensive way for analysing an organisation’s position, considering alternative choices, and selecting and implementing strategies. In this sense, the fundamental questions in each chapter provide a comprehensive checklist for strategy. These fundamental questions are summed up in Table 1.1. Any assess- ment of an organisation’s strategy will benefit from asking these questions systematically. The frameworks for answering these and related questions can be found in the respective chapters. The logic of the Exploring Strategy Framework can be applied to our personal lives as much as to organisations. We all have to make decisions with long-run consequences for our futures and the issues involved are very similar. For example, in pursuing a career strategy, a job-seeker needs to understand the job market, evaluate their strengths and weaknesses, establish the range of job opportunities and decide what their career goals really are (posi- tioning issues). The job-seeker then narrows down the options, makes some applications Table 1.1 The strategy checklist Sixteen fundamental questions in strategy Strategic position Strategic choices Strategy in action What are the macro-environmental How should business units compete? Are strategies suitable, acceptable opportunities and threats? Which businesses to include in a and feasible? How can the organisation manage portfolio? What kind of strategy-making industry forces? Where should the organisation process is needed? How are stakeholders aligned to the compete internationally? What are the required organisation organisational purpose? Is the organisation innovating structures and systems? What resources and capabilities appropriately? How should the organisation manage support the strategy? Should the organisation buy other necessary changes? How does culture fit the strategy? companies, ally or go it alone? Who should do what in the strategy process? 15 CHAPTER 1 INTRODUCING STRATEGY and finally gets an offer (choice issues). Once the job-seeker has chosen a job, he or she sets to work, adjusting their skills and behaviours to suit their new role (strategy in action). Just as in the non-linear, overlapping Exploring Strategy Framework, experience of the job will frequently amend the original strategic goals. Putting a career strategy into action produces better understanding of strengths and weaknesses and frequently leads to the setting of new career goals. 1.4 WORKING WITH STRATEGY Strategy itself is a kind of work, and it is something that almost all levels of management have to engage in, not just top decision-makers. Middle and lower-level managers have to understand their organisation’s strategic objectives and contribute to them as best they can. Managers have to communicate strategy to their teams, and will achieve greater performance from them the more convincing they are in doing so. Indeed, as responsibility is increasingly decentralised in many organisations, middle and lower-level managers play a growing part in shaping strategy themselves. Because they are closer to the daily realities of the business, lower-level managers can be a crucial source of ideas and feedback for senior management teams. Being able to participate in an organisation’s ‘strategic conversation’ – engaging with senior managers on the big issues facing them – is therefore often part of what it takes to win promotion.9 For many managers, then, strategy is part of the job. However, there are specialist strat- egists as well, in both private and public sectors. Many large organisations have in-house strategic planning or analyst roles.10 Typically requiring a formal business education of some sort, strategic planning is a potential career route for many readers of this book, especially after some functional experience. Strategy consulting has been a growth industry in the last decades, with the original leading firms such as McKinsey & Co., the Boston Consulting Group and Bain joined now by more generalist consultants such as Accenture, IBM Con- sulting and PwC, each with its own strategy consulting arm.11 Again, business graduates are in demand for strategy consulting roles, such as that of Claudia in the opening example.12 The interviews in Illustration 1.3 give some insights into the different kinds of strategy work that managers and strategy specialists can do. Galina, the manager of an international subsidiary, Chantal, a strategy consultant, and Paul, heading a strategy office in a not-for- profit organisation, all have different experiences of strategy, but there are some common themes also. All find strategy work stimulating and rewarding. The two specialists, Chantal and Paul, talk more than Galina of analytical tools such as scenario analysis, sensitivity analysis and hypothesis testing. Galina discovered directly the practical challenges of real- world strategic planning, having to adapt the plan during the first few years in the UK. She emphasises the importance of flexibility in strategy and the value of getting her managers to see the ‘whole picture’ through involving them in strategy-making. But Chantal and Paul too are concerned with much more than just analysis. Chantal emphasises the importance of gaining ‘traction’ with clients, building consensus in order to ensure implementation. Paul also realises that delivering recommendations is just the beginning of the strategy process and getting buy-in from key stakeholders is critical for implementation. He sees strategy and delivery as intimately connected, with people involved in delivery needing an understanding of strategy to be effective, and strategists needing to understand delivery. 16  WORKING WITH STRATEGY ILLUSTRATION 1.3 Strategists For Galina, Chantal and Paul, strategy is a large part of their jobs. Galina Consulting work can involve financial and market modelling (see Chapters 3 and 12), interviewing clients and customers, and At the age of 33, after a start in marketing, Galina became working closely with the client’s own teams. Chantal explains: managing director of a Russian-owned British IT company. As well as developing the strategy for her local business, she has ‘As a consultant, you spend a lot of time in building solid to interact regularly with headquarters: ‘Moscow is interested fact-based arguments that will help clients make business in the big picture, not just the details. They are interested in decisions. But as well as the facts, you have to have the the future of the business.’ ability to get traction. People have to agree, so you have She had to adapt substantially the subsidiary’s strategic to build consensus, to make sure that recommendations plans: are supported and acted on.’ ‘When we first came here, we had some ideas about strategy, Chantal summarises the appeal of strategy consulting: ‘I but soon found the reality was very different to the plans. enjoy the learning, at a very high speed. There’s the opportu- The strategy was not completely wrong, but in the second nity to increase your skills. One year in consulting is like two stage we had to change it a lot: we had to change techniques years in a normal business.’ and adapt to the market. Now we are in the third stage, where we have the basics and need to focus on trends, to get ahead and be in the right place at the right time.’ Paul Galina works closely with her management team on strat- In his early forties, Paul is a UK ex-pat in Saudi Arabia head- egy, taking them on an annual ‘strategy away-day’ (see Chap- ing up a key part of the Strategy and Planning Office in a large ter 16): ‘Getting people together helps them see the whole hospital with a multi-million pound investment responsibility. picture, rather than just the bits they are responsible for. It is ‘Rational linear analysis is very important here. We have good to put all their separate realities together.’ an abundance of data from all the major consultancies Galina is enthusiastic about working on strategy: and a number of high-profile US academic advisors and ‘I like strategy work, definitely. The most exciting thing is need to assemble it for forecasting and trend analysis pur- to think about where we have come from and where we poses. A great deal of time is taken crafting documents for might be going. We started in a pub five years ago and key stakeholders. Informally we used a range of strategy we have somehow implemented what we were hoping for tools and techniques including statistical analysis, sce- then. Strategy gives you a measure of success. It tells you nario analysis (see Chapter 2), sensitivity analysis (see how well you have done.’ Chapter 12), hypothesis testing (see Chapter 16) and also carry out many internal surveys to monitor implementation Her advice is: ‘Always have a strategy – have an ultimate progress.’ idea in mind. But take feedback from the market and from your colleagues. Be ready to adjust the strategy: the adjust- Paul has been surprised by the sheer amount of time and ment is the most important.’ effort needed to consult key internal and external stakehold- ers personally: ‘I have to consult every project manager and director and, more importantly, politically powerful and rich Chantal external stakeholders, regardless of their knowledge – and Chantal is in her early thirties and has worked in Paris for they have to be flattered to get buy-in.’ one of the top three international strategy consultancies since What Paul likes about the job is making a difference by graduating in business. Consulting was attractive to her orig- ‘changing people’s perceptions, getting powerful individuals inally because she liked the idea of helping organisations to make decisions and understand the reasons – rather than improve. She enjoys strategy consulting because ‘I like solv- hiding behind endless committees (see Chapter 16).’ ing problems. It’s a bit like working on a mystery case: you Source: interviews (interviewees anonymised). have a problem and then you have to find a solution to fit the company, and help it grow and to be better.’ The work is intellectually challenging: Questions ‘Time horizons are short. You have to solve your case in two to three months. There’s lots of pressure. It pushes 1 Which of these strategy roles appeals to you most – you and helps you to learn yourself. There are just three to manager of a business unit in a multinational, four in a team, so you will make a significant contribution strategy consultant or in-house strategy specialist? to the project even as a junior. You have a lot of autonomy Why? and you’re making a contribution right from the start, and 2 What would you have to do to get such a role? at quite a high level.’ 17 CHAPTER 1 INTRODUCING STRATEGY Strategy, therefore, is not just about abstract organisations. It is about linking analysis with implementation on the ground. It is complex work that real people do. An important aim of this book is to equip readers to do this work better. 1.5 STUDYING STRATEGY This book is both comprehensive and serious about strategy. To understand the full range of strategy issues – from analysis to action – it is important to be open to the perspectives and insights of key disciplines such as economics, finance, sociology and psychology. To be serious about strategy means to draw as far as possible on rigorous research about these issues. This book aims for an evidence-based approach to strategy, hence the articles and books referenced at the end of each chapter.13 This book therefore covers equally the three main branches of strategy research: con- ventionally, these are known as strategy context, strategy content and strategy process. In terms of the Exploring Strategy Framework (Figure 1.3), context broadly relates to posi- tioning, content to choice and process to action. Each of these branches contains various research streams whose lessons can be readily applied to practical questions of strategy issues. Figure 1.4 shows the three branches and their respective research streams: these are listed in the approximate historical order of their emergence as strong research streams, the arrows representing the continuously developing nature of each. In more detail, the three branches and the characteristic analytical approaches of their main research streams are as follows: Strategy context refers to multiple layers of environment, internal and external to organi- sations. All organisations need to take into account the opportunities and threats of their external environments. Macro-environmental analysis has been an enduring theme in strategy with early recognition of multiple pressures upon industries in the 1960s. Subse- quently, researchers have focused upon various additional themes including institutional pressures establishing the ‘rules of the game’ within which companies operate. Industry analysis took off as a research tradition in the early 1980s, when Michael Porter showed Context Content Process (internal and external) (strategic options) (formation and implementation) Research: Research: Research: Macro-environmental Choice Strategic planning Industry analysis and Choice and change Cultural analysis performance Strategy-as-practice Resource-based view Figure 1.4 Strategy’s three branches 18  STUDYING STRATEGY how the tools of economics could be applied to understanding what makes industries attractive (or unattractive) to operate in.14 From the 1980s too, cultural analysts have used sociological insights into human behaviour to point to the importance of shared cultural understandings about appropriate ways of acting. In the internal context, cultural analysts show that strategies are often influenced by the organisation’s specific culture. In the external context, they show how strategies often have to fit with the surrounding industry or national cultures. Resource-based view researchers focus on internal context, looking for the unique characteristics of each organisation.15 According to the resource- based view, the economic analysis of market imperfections, the psychological analysis of perceptual or emotional biases, and the sociological analysis of organisational cultures should reveal the particular characteristics (resources) that contribute to an organisation’s specific competitive advantages and disadvantages. Strategy content concerns the content (or nature) of different strategies and their probability of success. Here the focus is on the merits of different strategic options. Strat- egy and performance researchers started by using economic analysis to understand the success of different types of diversification strategies. This research continues as the endur- ing central core of the strategy discipline, with an ever-growing list of issues addressed. For example, contemporary strategy and performance researchers examine various new innovation strategies, different kinds of internationalisation and all the complex kinds of alliance and networking strategies organisations adopt today. These researchers typically bring a tough economic scrutiny to strategy options. Their aim is to establish which types of strategies pay best and under what conditions. They refuse to take for granted broad generalisations about what makes a good strategy. Strategy process, broadly conceived, examines how strategies are formed and imple- mented. Research here provides a range of insights to help managers in the practical processes of managing strategy.16 From the 1960s, researchers in the strategic planning tradition have drawn from economics and management science in order to design rational and analytical systems for the planning and implementing of strategy. How- ever, strategy involves people: since the 1980s, choice and change researchers have been pointing to how the psychology of human perception and emotions, and the sociology of group politics and interests, tend to undermine rational analysis.17 The advice of these researchers is to accept the irrational, messy realities of organisations, and to work with them, rather than to try to impose textbook rationality. Finally, strategy-as-practice researchers have recently been using micro-sociological approaches to closely examine the human realities of formal and informal strategy processes.18 This tradition focuses attention on how people do strategy work, and the importance of having the right tools and skills. From the above, it should be clear that studying strategy involves perspectives and insights from a range of academic disciplines. Issues need to be ‘explored’ from different points of view. A strategy chosen purely on economic grounds can easily be undermined by psy- chological and sociological factors. On the other hand, a strategy that is chosen on the psychological grounds of emotional enthusiasm, or for sociological reasons of cultural acceptability, is liable to fail if not supported by favourable economics. As underlined by the four strategy lenses to be introduced later, one perspective is rarely enough for good strategy. A complete analysis will typically need the insights of economics, psychology and sociology. 19 CHAPTER 1 INTRODUCING STRATEGY 1.6 EXPLORING STRATEGY FURTHER So far we have stressed that strategic issues are typically complex, best explored from a number of points of views. There is no simple, universal rule for good strategy. This section introduces two further ways of exploring strategy: one depending on context, the other depending on perspective. 1.6.1 Exploring strategy in different contexts Although the basic elements of the Exploring Strategy Framework are relevant in most cir- cumstances, how they play out precisely is likely to differ according to organisational con- texts. To return to Illustration 1.2, both Samsung and Southampton University share some fundamental issues about how to compete and what activities they should have in their portfolio. However, for a Korean electronics company and a British university, the role of institutions, particularly government, varies widely, affecting the freedom to choose and the ability to change. In applying the Exploring Strategy Framework, it is therefore useful to ask what kinds of issues are likely to be particularly significant in the specific context being considered. To illustrate, this section shows how issues arising from the Exploring Strategy Framework can vary in three important organisational contexts. Small businesses. With regard to positioning, small businesses will certainly need to attend closely to the environment, because they are so vulnerable to change. But, especially in small entrepreneurial and family businesses, the most important positioning issue will often be strategic purpose: this will not necessarily just be profit, but might include objec- tives such as independence, family control, handing over to the next generation and maybe even a pleasant lifestyle. The range of strategic choices is likely to be narrower: for a small business, acquisitions may not be affordable, though they may have to decide whether to allow themselves to be acquired. Some issues of strategy in action will be different, for example strategic change processes will not involve the same challenges as for large, complex organisations. Multinational corporations. In this context, positioning in a complex global marketplace will be very important. Each significant geographical market may call for a separate anal- ysis of the business environment. Likewise, operating in many different countries will raise positioning issues of culture: variations in national culture imply different demands in the marketplace and different managerial styles internally. Strategic choices are likely to be dominated by international strategy questions about which geographical markets to serve. The scale and geographical reach of most multinationals point to significant issues for strategy-in-action, particularly those of organisational structure and strategic change. Public sector and not-for-profits. Positioning issues of competitive advantage will be important even in these contexts, but have a different flavour. Charitable not-for-profits typically compete for funds from donors; public-sector organisations, such as schools and hospitals, often compete on measures such as quality or service. The positioning issue of purpose is likely to be very important too. In the absence of a clear, focused objective such as profit, purpose in the public sector and not-for-profits can be ambiguous and con- tentious. Strategic choice issues may be narrower than in the private sector: for example, 20  EXPLORING STRATEGY FURTHER there may be constraints on diversification. Strategy in action issues often need close attention, leadership and change typically being very challenging in large public-sector organisations. In short, while drawing on the same basic principles, strategy analysis is likely to vary in focus across different contexts. As the next section will indicate, it is often helpful therefore to apply different lenses to strategy problems. 1.6.2 Exploring strategy through different ‘strategy lenses’ Exploring means looking for new and different things. Exploring strategy involves search- ing for new angles on strategic problems. A comprehensive assessment of an organisation’s strategy needs more than one perspective. We introduce ‘the strategy lenses’ as distinct, theoretically-informed perspectives on strategy. The strategy lenses are ways of looking at strategy issues differently in order to generate additional insights. Different perspectives will help you criticise prevailing approaches and raise new issues or solutions. Thus, although drawn from academic theory, the lenses should also be highly practical in the job of doing strategy. The four lenses are described fully at the end of Part I, after you have had a chance to take on board some key strategy frameworks for analysing strategic position. We shall return to them as well through brief commentaries at the end of Parts II and III. The following is therefore just a brief introduction to the lenses: Strategy as design views strategy development as ‘designed’ in the abstract, as an architect might design a building using pens, rulers and paper. Taking a design lens to a strategic problem means valuing hard facts and objectivity. It’s about being systematic, analytical and logical. Strategy as experience recognises that an organisation’s future strategy is often heavily influenced by its experience and that of its managers. Taken-for-granted assumptions and ways of doing things, embedded in people’s personal experience and in organisational culture, will drive strategy. Strategy is likely to build on rules of thumb, appeals to prece- dent, standard fixes, biases and routines of key decision-makers. Strategy as variety.19 Neither of the above lenses is likely to uncover radical new ideas in strategy as a design approach risks being too rigid and top-down and experience builds too much on the past. The variety lens sees strategy as emergent from within and around organisations as new ideas bubble up through an unpredictable process in response to an uncertain and changing environment. Strategy as discourse focuses attention on the ways managers use language to frame stra- tegic problems, make strategy proposals, debate issues and then finally communicate strategic decisions. Strategy discourse becomes a tool for managers to shape ‘objective’ strategic analyses in their favour and to gain influence, power and legitimacy – strategy ‘talk’ matters. None of these lenses is likely to offer a complete view of a strategic situation. The point of the lenses is to encourage the exploration of different perspectives: first from one point of view and then from another. This might help in recognising how otherwise logical strategic initiatives might be held back by cultural experience, unexpected ideas and self-interested strategy discourse. 21 CHAPTER 1 INTRODUCING STRATEGY SUMMARY Strategy is the long-term direction of an organisation. The work of strategy is to define and express the purpose of an organisation through its mission, vision, values and objectives. Ideally a strategy statement should include an organisation’s goals, scope of activities and the advantages or capabilities it brings to these goals and activities. Corporate-level strategy is concerned with an organisation’s overall scope; business-level strategy is concerned with how to compete; and functional strategy is concerned with how corporate- and business-level strategies are actually delivered. The Exploring Strategy Framework has three major elements: understanding the strategic position, making strategic choices for the future and managing strategy in action. Strategy work is done by managers throughout an organisation, as well as specialist strategic planners and strategy consultants. Research on strategy context, content and process shows how the analytical perspectives of economics, finance, sociology and psychology can all provide practical insights for approaching strategy issues. Although the fundamentals of strategy may be similar, strategy varies by organisational context, for example, small business, multinational or public sector. Strategic issues can be viewed critically from a variety of perspectives, as exemplified by the four strategy lenses of design, experience, variety and discourse. WORK ASSIGNMENTS ✱ Denotes more advanced work assignments. * Refers to a case study in the Text and Cases edition. 1.1 Drawing on Figure 1.2 as a guide, write a strategy statement for an organisation of your choice (for example, the Airbnb end of chapter case, or your university), drawing on strategy materials in the organisation’s annual report or website. 1.2 Using the Exploring Strategy Framework of Figure 1.3, map key issues relating to strategic position, strategic choices and strategy in action for either the Airbnb or Glastonbury* cases, or an organisation with which you are familiar (for example, your university). 1.3 Go to the website of one of the major strategy consultants such as Bain, the Boston Consulting Group or McKinsey & Co. (see reference 11 below). What does the website tell you about the nature of strategy consulting work? Would you enjoy that work? 1.4✱ Using Figure 1.3 as a guide, show how the elements of strategic management differ in: (a) a small or family business (e.g. Adnams*) (b) a large multinational business (e.g. SABMiller or AB InBev in the Megabrew* case, Kraft Foods in the Mondelez* case) (c) a non-profit organisation (e.g. Aurizon or King Faisal Hospital*). 22  REFERENCES RECOMMENDED KEY READINGS It is always useful to read around a topic. As well as Sloan Management Review, vol. 48, no. 1 (2006), pp. the specific references below, we particularly highlight: 71–75. Two stimulating overviews of strategic thinking in gen- For contemporary developments in strategy practice, con- eral, aimed particularly at practicing managers, are C. sult business newspapers such as the Financial Times, Les Montgomery, The Strategist: Be the Leader your Busi- Echos and the Wall Street Journal and business magazines ness Needs, Harper Business, 2012; and R. Rumelt, Good such as Business Week, The Economist, L’Expansion and Strategy/Bad Strategy: the Difference and Why it Matters, Manager-Magazin. Several of these have well-informed Crown Business, 2011. Asian editions. See also the websites of the leading strat- egy consulting firms: www.mckinsey.com; www.bcg.com; Two accessible articles on what strategy is, and might not and www.bain.com. be, are M. Porter, ‘What is strategy?’, Harvard Business Review, November–December 1996, pp. 61–78; and F. Fréry, ‘The fundamental dimensions of strategy’, MIT REFERENCES 1. The question ‘What is strategy?’ is discussed in R. Whitting- 11. The major strategy consulting firms have a wealth of infor- ton, What Is Strategy – and Does it Matter?, International mation on strategy careers and strategy in general: see www. Thomson, 1993/2000; and M.E. Porter, ‘What is strategy?’, mckinsey.com; www.bcg.com; www.bain.com. Harvard Business Review, November–December 1996, pp. 12. University careers advisers can usually provide good advice 61–78. on strategy consulting and strategic planning opportunities. 2. T. Zenger, ‘What is the theory of your firm?’, Harvard Busi- See also www.vault.com. ness Review, June 2013, pp. 72–80. 13. For reviews of the contemporary state of strategy as a disci- 3. Cynthia A. Montgomery, ‘Putting leadership back into strat- pline, see J. Mahoney and A. McGahan, ‘The field of stra- egy’, Harvard Business Review, January 2008, pp. 54–60. tegic management within the evolving science of strategic 4. See J. Collins and J. Porras, Built to Last: Successful Habits organization’, Strategic Organization, vol. 5, no. 1 (2007), of Visionary Companies, Harper Business, 2002. pp. 79–99; and R. Whittington, ‘Big strategy/small strategy’, 5. J. Collins and J. Porras, ‘Building your company’s vision’, Strategic Organization, vol. 10, no. 3 (2012), pp. 263–68. Harvard Business Review, September–October 1996, pp. 14. See M.E. Porter, ‘The Five Competitive Forces that shape 65–77. strategy’, Harvard Business Review, January 2008, pp. 6. See Sayan Chatterjee, ‘Core objectives: clarity in designing 57–91. strategy’, California Management Review, vol. 47, no. 2 15. The classic statement of the resource-based view is J. Barney, (2005), pp. 33–49. For some advantages of ambiguity, see ‘Firm resources and sustained competitive advantage’, Jour- J. Sillince, P. Jarzabkowski and D. Shaw, ‘Shaping strategic nal of Management, vol. 17, no. 1 (1991), pp. 91–120. action through the rhetorical construction and exploitation 16. A recent review of strategy process research is H. Sminia, of ambiguity’, Organization Science, vol. 22, no. 2 (2011), ‘Process research in strategy formation: theory, methodol- pp. 1–21. ogy and relevance’, International Journal of Management 7. For example, see B. Bartkus, M. Glassman and B. McAfee, Reviews, vol. 11, no. 1 (2009), pp. 97–122. ‘Mission statements: are they smoke and mirrors?’, Business 17. Psychological influences on strategy are explored in a spe- Horizons, vol. 43, no. 6 (2000), pp. 23–8. cial issue of the Strategic Management Journal, edited by T. 8. D. Collis and M. Rukstad, ‘Can you say what your strategy Powell, D. Lovallo and S. Fox: ‘Behavioral strategy’, vol. 31, is?’ Harvard Business Review, April 2008, pp. 63–73. no. 13 (2011). 9. F. Westley, ‘Middle managers and strategy: microdynamics 18. For a review of strategy-as-practice research, see E. Vaara of inclusion’, Strategic Management Journal, vol. 11, no. 5 and R. Whittington, ‘Strategy-as-practice: taking social prac- (1990), pp. 337–51. tices seriously’, Academy of Management Annals, vol. 6, no. 10. For insights about in-house strategy roles, see D. N. Angwin, 1 (2012), pp. 285–336. S. Paroutis and S. Mitson, ‘Connecting up strategy: are 19. In earlier editions, this lens was called the ‘ideas lens’. strategy directors a missing link?’ California Management Review, vol. 51, no. 3 (2009), pp. 74–94. 23  CASE The rise of a unicorn – Airbnb EXAMPLE Duncan Angwin on a website created by former flatmate and computer programmer, Nathan Blecharczyk. In the summer of 2008, Barack Obama was due to speak in Denver at the Democratic Party National Convention. Eighty thou- sand people were expected to attend and Joe and Brian thought there would be a shortage of hotel rooms. They rushed to complete their website in time and recorded 800 listings in one week. However, it did not make any money. To survive they had to make use of their entrepre- neurial skills, buying cereal in bulk and designing pack- Airbnb logo