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Definition: strategic management from QFinance: The Ultimate Resource

management for longer-term objectives the development of corporate strategy, and the management of an organization according to that strategy. Strategic management focuses on achieving and maintaining a strong competitive advantage. It involves the application of corporate strategy to all aspects of the organization, and especially to decision making. As a discipline, strategic management developed in the 1970s, but it has evolved in response to changes in organization structure and corporate culture. With greater empowerment, strategy has become the concern not just of directors but also of employees at all levels of the organization

Summary Article: Strategic Management
from International Encyclopedia of Organization Studies

The word strategy comes to us from the ancient Greeks. There, in 508 bc, the position of strategos was created as part of a process of democratic reform. The word was a compound of agein (to lead) and stratos (an army spread over the ground). Each of the 10 tribes of Athens was required to appoint a strategos as their military and political leader.

Conceptual Overview
The Conventional View

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.

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.

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.

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.

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 entrants combine to have an impact on that industry’s average margins (the gap between selling prices and the costs of production). If, on balance, the forces are strong, margins will be relatively low. If the forces are weak, margins should be high.

The Porter Diamond of International Competitiveness examines regional or national competitive advantages. By investigating factor costs; demand conditions; related and supporting industries; firm strategy, structure, and rivalry; government strategy; and influential chance events (e.g., a war or extreme weather), one can outline why, for example, the Belgians may have a competitive advantage with beer or Silicon Valley in computing.

The Challengers

There have, however, been a number of critics of the classical view of strategic management. Some, like Stacey, have argued that the frameworks of Porter and others are too simple and flimsy to capture the complexity of the real world in any meaningful way. Others have focused more on how strategy making actually happens.

In 1973, Mintzberg’s The Nature of Managerial Work purported to look not at what we might think managers should be (rational, analytical) and should do (match, plan, design, and organize) but what they actually did. He found that they were much more chaotic, political, stressed-out, expedient, and opportunistic than the textbooks suggested. Consequently, strategies were more likely to emerge from chance events, interactions, and patterns of behavior than from a detached and logical planning process. Thus, day-to-day operational activities can be, or become, strategic.

Out of this original thesis emerged a stream of likeminded publications. In the article Crafting Strategy, Mintzberg suggests that the strategy process can be better understood if we see it as like a potter sitting at a wheel with a lump of clay. The potter may have a plan of attack, a design of what he or she wants to achieve, but what the potter ends up achieving will also be a result of ideas and opportunities that emerge only as the clay takes shape. The Rise and Fall of Strategic Planning went further; Mintzberg argued that the classical approach to strategy was “dead” and that a new “emergence” view was rising to take its place. Often-cited examples used to illustrate the emergence view included Honda’s failed attempt at planning to enter the U.S. motorcycle market, but ultimately successful entry into a different segment thanks to some good fortune and quick adjustment, and Post-it Notes: a happy accident from the bottom of an organization that eventually emerged to drive a good part of 3M’s strategy and success.

Others have added weight to Mintzberg’s critique. Andrew Pettigrew’s challenge looks at how the content of strategy (plans, positions, objectives) must be seen in relation to processes that do not necessarily reflect rational, detached thinking by senior management, but historical or cultural patterns. Similarly, Richard Whittington has sought to keep a focus on what manager’s actually do when creating strategy and to see strategy as emerging from small or “micro” actions rather than big “macro” thinking. He, and others like Jarzabkowski, have outlined a view of “strategy as practice,” rather than strategy as detached planning, logical positioning, or grand designs.

The most widely known theory and framework for thinking about strategy and competitive advantage as something that emerges within an organization over time is the resource-based view of the firm and the associated VRIO framework (explained below). The resource-based view of the firm is a model of performance that focuses on the resources and capabilities that exist within a firm as sources of competitive advantage. Resources are tangible and intangible assets and are often grouped into four types: financial (e.g., capital), physical (e.g., plant, equipment), human (e.g., employees), and organizational (e.g., control systems, distribution networks). Capabilities are networks or systems that connect the firm’s resources to enable the firm to take full advantage of all of its resources (e.g., trust, knowledge, a particular culture, or teamwork). While these things can be planned for and encouraged, they tend to emerge organically over time. Thus, it is assumed that resources and capabilities are heterogeneous and immobile. That is, they are unique, embedded, and thus difficult to design, transfer, or replicate.

One can assess the strength and sustainability of a firm’s competitive advantage by applying the VRIO framework. The acronym stands for value, rarity, inimitability, and organization. If the answers to the following questions with regard to a particular firm are yes, then that firm has a strong and sustainable competitive advantage:

  • Value. Do the firm’s resources/capabilities enable it to exploit environmental opportunities or neutralize any environmental threats?

  • Rarity. Are resources/capabilities controlled by only a small number of firms?

  • Inimitability. Do firms without our resources/capabilities face a cost disadvantage in getting or growing them?

  • Organization. Are a firm’s systems organized to support the exploitation of its rare, valuable, and costly to imitate resources and capabilities?

Disputes and Accord

The 1990s were characterized by disagreement between those for and against the classical view. Debates, like the one between Mintzberg and Ansoff, became fractious and positions polarized. Michael Porter entered the fray in a 1996 article titled What Is Strategy? warning of the danger of being misled by “dangerous half-truths” that confused operational activities with strategy. Criticizing those who had looked to the East for more organic and incremental approaches, he went on to clam that Japanese companies actually rarely have strategies as they rarely develop a distinct strategic position, a concept that was once the heart of strategy. This battle over the correct definition of strategy caused many to lament that something was amiss, and that the many decades of vigorous development in strategic management had come to nothing.

However, something of an accord has emerged in recent times. In Strategy Safari and associated publications, Henry Mintzberg and others draw on the metaphor of six blind men feeling a different part of an elephant and believing they were each holding a different beast. They argue that while we could now identify many different schools of thought with regard to how strategy works in practice (from the “classical” to the more emergent, organic, and avant-garde) they all had some merit. (These schools are planning, positioning, design, environmental, learning, cognitive, consensus, power, cultural, entrepreneurial, process, and configuration, the last being an attempt to incorporate aspects from the other schools). Indeed, they claim that the greatest failings of strategic management have occurred when managers took one point of view too seriously.

This growing accord may be traced back to a special California Management Review forum made up of leading strategy thinkers in 1996. This forum, which took different interpretations of how Honda’s strategy for entering into the U.S. motorcycle market as its starting point, concluded that the strengths of both the classical and emergent perspectives should be acknowledged and that companies should aim to exhibit “strategic agility,” the ability to move quickly to, and away from, set plans. Honda’s plans, although they did not work out in practice (their rational analysis suggested that big bikes were what Americans wanted, but they ended up selling small bikes—something this market had not considered before), gave them the impetus to move forward. From there, their agility enabled them to reorganize their resources and capabilities to seize unforeseen opportunities as they emerged.

Recently, Bob De Wit and Ron Meyer have attempted to describe the often paradoxical tensions that strategists now must find individual solutions to. Thus, instead of grappling with generic either/or choices like cost reduction versus differentiation through quality, or planning versus flexibility, firms should perhaps focus on alternative questions. For example: Does globalization offer opportunities to reduce costs and increase quality? How can we at once act big and be nimble? How can we have clear strategic plans and be agile enough to disregard them if environmental conditions suggest a realignment to be the best course? This shift encourages us to embrace paradoxes in strategic management rather than seeing them as a problem, to realize that within different parts of a firm or at different times, different approaches to strategy may be necessary, and to be prepared to invent terms (e.g., glocalization, centralized-decentralization) that, while ambiguous, better capture the paradoxes that strategy makers must confront.

Finally, in the book Images of Strategy, Cummings and Wilson draw on an alternative definition developed by Karl Weick. Weick argued that a substitute for Chandler’s classic definition might be that strategy comes from the combination of a firm’s “orientation and animation.” Consequently, Images of Strategy argues for a focus less on a definition of what a good strategy is, or where strategy comes from, and more on what good strategies do: they orient (or provide a sense of what an organization is and where it is heading) and they animate (motivate people to move toward and exceed expectations). Such orientation and animation can come from top-down planning, emergent ideas, an emphasis on knowledge, a strong brand, a clear design philosophy, or any combination of forces such as these, depending on the nature of a particular organization.

This recent emphasis on multiple definitions, a promotion of both/and rather than either/or thinking, and a knowing acceptance of paradox, ambiguity, and the need for agility has led some to suggest that the field of strategic management is becoming more postmodern.

Critical Commentary and Future Directions

Whatever one’s view of strategic management, the success of a business strategy, whether meticulously planned or unarticulated and emergent, is generally measured by its ability to create a competitive advantage that garners healthy margins, and thus profits, over time. While some strategies may lead to such margins being deferred (e.g., companies like Google and Amazon realized that securing market share was initially more important), or some brands may lose money so long as they promote the business in other ways (often referred to as loss leaders), corporate margins cannot be deferred forever. With this in mind, there are some potentially interesting avenues in strategic management to be further explored in the future.

First, the desire to act big in some ways (e.g., access to capital) and be nimble and niche-oriented in others will see an increase in network or alliancebased strategies and growth through acquisition whereby the independence (if not the appearance of independence) of the acquired or smaller companies is maintained.

Second, there will be increased interest in how to maintain and grow the intangible components of a firm’s capabilities or competitive advantages. This will be largely due to the fact that the process of copying hard systems and technology is becoming more widespread. Indeed, there is already research that suggests while copying best practices or benchmarking off industry leaders is generally bad strategy, as it leads to increasing homogenization and subsequently declining margins as firms have to compete on price.

Third, and relatedly, global competition and the increased ease with which firms can reduce costs by producing in economies with low factor costs, will lead to a renewed emphasis on strategy as about differentiation through other means.

Fourth, for these reasons, and as people become more comfortable with there being more than one best way of defining strategy, we shall see the continued development of multiple perspectives or images of strategy. Correspondingly, consultants and other strategy advisors will move beyond simple either/or strategic solutions that could be used as a blueprint in any company, and toward formulating individualized solutions.

Finally, while much of what is seen as the leading research published in the sciences (be they normal or human) is based on empiricism, the need to think differently from what has gone before in competitive industry or markets in order to capture higher margins may require effective strategic management research to become increasingly less empirical and increasingly more idealistic.

    See also
  • Organizational Strategy; Strategic Choice; Strategic Discourse

Further Readings
  • Andrews, K. (1971). The concept of corporate strategy. Homewood, IL: Irwin.
  • Ansoff, I. (1965). Corporate strategy. New York: McGraw-Hill.
  • Ansoff, I. Critique of Henry Mintzberg’s “The design school: Reconsidering the basic premises of strategic management.” Strategic Management Journal, 12, (1991). 449-461.
  • Barney, J. Firm resources and sustained competitive advantage. Journal of Management, 7, (1991). 49-64.
  • California Management Review. CMR forum: The “Honda effect” revisited. California Management Review, 38(4), (1996). 78-117.
  • Chandler, A. (1962). Strategy and structure. Boston: MIT Press.
  • Cummings, S. (2002). Recreating strategy. London: Sage.
  • Cummings, S.; Wilson, D. (2003). Images of strategy. Oxford, UK: Blackwell.
  • De Wit, B.; Meyer, R. (1999). Strategy: Process, content, context. London: International Thomson.
  • Jarzabkowski, P. (2005). Strategy as practice. London: Sage.
  • Learned, E. P.; Christensen, C. R.; Andrews, K. R.; Guth, W. D. (1969). Business policy. Homewood, IL: Irwin.
  • Mintzberg, H. (1973). The nature of managerial work. New York: Harper & Row.
  • Mintzberg, H. Crafting strategy. Harvard Business Review, 65(4), (1987). 66-75.
  • Mintzberg, H. Learning 1, planning 0: Reply to Igor Ansoff. Strategic Management Journal, 12, (1991). 463-466.
  • Mintzberg, H. (1994). The rise and fall of strategic planning. New York: Free Press.
  • Mintzberg, H.; Ahlstrand, B.; Lampel, J. (2000). Strategy, blind men, and the elephant. In Financial Times, Mastering strategy, London: Financial Times/Prentice Hall.
  • Mintzberg, H.; Ahlstrand, B.; Lampel, J. (2001). Strategy safari: A guided tour through the wilds of strategic management. London: Financial Times/Prentice Hall.
  • Nattermann, P. Best practice does not equal best strategy. The McKinsey Quarterly, 2, (2000). 22-31.
  • Pettigrew, A. (2003). Strategy as process, power and change. In Cummings, S. & Wilson, D. (Eds.), Images of strategy (pp. 301-330). Oxford, UK: Blackwell.
  • Poole, M. S.; Van de Ven, A. H. Using paradox to build management and organization theories. Academy of Management Review, 14(4), (1989). 562-578.
  • Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
  • Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York: Free Press.
  • Porter, M. E. (1990). The competitive advantage of nations. New York: Free Press.
  • Porter, M. E. What is strategy? Harvard Business Review, 74(6), (1996). 61-78.
  • Rumelt, R. (1984). Toward a strategic theory of the firm. In Lamb, R. (Ed.), Competitive strategic management (pp. 556-570). Englewood Cliffs, NJ: Prentice Hall.
  • Stacey, R. (1990). Dynamic strategic management for the 1990s. London: Kogan Page.
  • Wernerfelt, B. A resource-based view of the firm. Strategic Management Journal, 5, (1984). 171-180.
  • Whittington, R. Strategy as practice. Long Range Planning, 29(5), (1996). 731-735.
  • Zeleny, M. The fall of strategic planning. Human Systems Management, 16, (1997). 77-79.
  • Stephen Cummings
    Copyright © 2008 by SAGE Publications, Inc.

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