Strategic

management

In the field of management, strategic management

involves the formulation and implementation of the
major goals and initiatives taken by an
organization's top management on behalf of
owners, based on consideration of resources and
an assessment of the internal and external
environments in which the organization
operates.[1][2][3]
Strategic management provides overall direction
to an enterprise and involves specifying the
organization's objectives, developing policies and
plans to achieve those objectives, and then
allocating resources to implement the plans. [4]
Academics and practicing managers have
developed numerous models and frameworks to
assist in strategic decision-making in the context
of complex environments and competitive
dynamics.[5] Strategic management is not static in
nature; the models often include a feedback loop
to monitor execution and to inform the next round
of planning.[6][7][8]

Michael Porter identifies three principles

underlying strategy:[9]
 creating a "unique and valuable [market]
position"
making trade-offs by choosing "what not to do"
creating "fit" by aligning company activities with
one another to support the chosen strategy

Corporate strategy involves answering a key

question from a portfolio perspective: "What
business should we be in?" Business strategy
involves answering the question: "How shall we
compete in this business?"[10]

Management theory and practice often make a

distinction between strategic management and
operational management, with operational
management concerned primarily with improving
efficiency and controlling costs within the
boundaries set by the organization's strategy.

Definition

Strategic management processes and activities

Strategic management involves the formulation

and implementation of the major goals and
initiatives taken by a company's top management
on behalf of owners, based on consideration of
resources and an assessment of the internal and
external environments in which the organization
competes.[1] Strategy is defined as "the
determination of the basic long-term goals of an
enterprise, and the adoption of courses of action
and the allocation of resources necessary for
carrying out these goals."[11] Strategies are
established to set direction, focus effort, define or
clarify the organization, and provide consistency or
guidance in response to the environment.[12]

Strategic management involves the related

concepts of strategic planning and strategic
thinking. Strategic planning is analytical in nature
and refers to formalized procedures to produce the
data and analyses used as inputs for strategic
thinking, which synthesizes the data resulting in
the strategy. Strategic planning may also refer to
control mechanisms used to implement the
strategy once it is determined. In other words,
strategic planning happens around the strategic
thinking or strategy making activity.[13]

Strategic management is often described as

involving two major processes: formulation and
implementation of strategy. While described
sequentially below, in practice the two processes
are iterative and each provides input for the
other.[13]

Formulation
Formulation of strategy involves analyzing the
environment in which the organization operates,
then making a series of strategic decisions about
how the organization will compete. Formulation
ends with a series of goals or objectives and
measures for the organization to pursue.
Environmental analysis includes the:

Remote external environment, including the

political, economic, social, technological, legal
and environmental landscape (PESTLE);
Industry environment, such as the competitive
behavior of rival organizations, the bargaining
power of buyers/customers and suppliers,
threats from new entrants to the industry, and
 the ability of buyers to substitute products
(Porter's 5 forces); and
Internal environment, regarding the strengths
and weaknesses of the organization's resources
(i.e., its people, processes and IT systems).[13]

Strategic decisions are based on insight from the

environmental assessment and are responses to
strategic questions about how the organization will
compete, such as:

What is the organization's business?

Who is the target customer for the
organization's products and services?
Where are the customers and how do they buy?
What is considered "value" to the customer?
Which businesses, products and services should
be included or excluded from the portfolio of
offerings?
What is the geographic scope of the business?
What differentiates the company from its
competitors in the eyes of customers and other
stakeholders?
Which skills and capabilities should be
developed within the firm?
What are the important opportunities and risks
for the organization?
How can the firm grow, through both its base
business and new business?
How can the firm generate more value for
investors?[13][14]
The answers to these and many other strategic
questions result in the organization's strategy and
a series of specific short-term and long-term goals
or objectives and related measures.[13]

Implementation

The second major process of strategic

management is implementation, which involves
decisions regarding how the organization's
resources (i.e., people, process and IT systems)
will be aligned and mobilized towards the
objectives. Implementation results in how the
organization's resources are structured (such as
by product or service or geography), leadership
arrangements, communication, incentives, and
monitoring mechanisms to track progress towards
objectives, among others.[13]

Running the day-to-day operations of the business

is often referred to as "operations management" or
specific terms for key departments or functions,
such as "logistics management" or "marketing
management," which take over once strategic
management decisions are implemented.[13]

Many definitions of strategy

In 1988, Henry Mintzberg Strategy has been

described the many practiced whenever an
different definitions and advantage was gained
perspectives on strategy by planning the
reflected in both sequence and timing of

academic research and the deployment of

resources while
in practice.[16][17] He
simultaneously taking
examined the strategic
into account the
process and concluded it
probable capabilities
was much more fluid and and behavior of
unpredictable than competition.
people had thought. Bruce Henderson[15]
Because of this, he could
not point to one process
that could be called strategic planning. Instead
Mintzberg concludes that there are five types of
strategies:

Strategy as plan – a directed course of action

to achieve an intended set of goals; similar to
the strategic planning concept;
Strategy as pattern – a consistent pattern of
past behavior, with a strategy realized over
time rather than planned or intended. Where the
realized pattern was different from the intent,
he referred to the strategy as emergent;
Strategy as position – locating brands,
products, or companies within the market, based
on the conceptual framework of consumers or
other stakeholders; a strategy determined
primarily by factors outside the firm;
Strategy as ploy – a specific maneuver
intended to outwit a competitor; and
Strategy as perspective – executing strategy
based on a "theory of the business" or natural
 extension of the mindset or ideological
perspective of the organization.

In 1998, Mintzberg developed these five types of

management strategy into 10 “schools of thought”
and grouped them into three categories. The first
group is normative. It consists of the schools of
informal design and conception, the formal
planning, and analytical positioning. The second
group, consisting of six schools, is more concerned
with how strategic management is actually done,
rather than prescribing optimal plans or positions.
The six schools are entrepreneurial, visionary,
cognitive, learning/adaptive/emergent,
negotiation, corporate culture and business
environment. The third and final group consists of
one school, the configuration or transformation
school, a hybrid of the other schools organized into
stages, organizational life cycles, or “episodes”.[18]

Michael Porter defined strategy in 1980 as the

"...broad formula for how a business is going to
compete, what its goals should be, and what
policies will be needed to carry out those goals"
and the "...combination of the ends (goals) for
which the firm is striving and the means (policies)
by which it is seeking to get there." He continued
that: "The essence of formulating competitive
strategy is relating a company to its
environment."[19]
Some complexity theorists define strategy as the
unfolding of the internal and external aspects of
the organization that results in actions in a socio-
economic context.[20][21][22]

Historical development
Origins

The strategic management discipline originated in

the 1950s and 1960s. Among the numerous early
contributors, the most influential were Peter
Drucker, Philip Selznick, Alfred Chandler, Igor
Ansoff,[23] and Bruce Henderson.[5] The discipline
draws from earlier thinking and texts on 'strategy'
dating back thousands of years. Prior to 1960, the
term "strategy" was primarily used regarding war
and politics, not business.[24] Many companies built
strategic planning functions to develop and
execute the formulation and implementation
processes during the 1960s.[25]

Peter Drucker was a prolific management theorist

and author of dozens of management books, with a
career spanning five decades. He addressed
fundamental strategic questions in a 1954 book
The Practice of Management writing: "... the first
responsibility of top management is to ask the
question 'what is our business?' and to make sure it
is carefully studied and correctly answered." He
wrote that the answer was determined by the
customer. He recommended eight areas where
objectives should be set, such as market standing,
innovation, productivity, physical and financial
resources, worker performance and attitude,
profitability, manager performance and
development, and public responsibility.[26]

In 1957, Philip Selznick initially used the term

"distinctive competence" in referring to how the
Navy was attempting to differentiate itself from
the other services.[5] He also formalized the idea
of matching the organization's internal factors with
external environmental circumstances.[27] This
core idea was developed further by Kenneth R.
Andrews in 1963 into what we now call SWOT
analysis, in which the strengths and weaknesses
of the firm are assessed in light of the
opportunities and threats in the business
environment.[5]

Alfred Chandler recognized the importance of

coordinating management activity under an all-
encompassing strategy. Interactions between
functions were typically handled by managers who
relayed information back and forth between
departments. Chandler stressed the importance of
taking a long term perspective when looking to the
future. In his 1962 ground breaking work Strategy
and Structure, Chandler showed that a long-term
coordinated strategy was necessary to give a
company structure, direction and focus. He says it
concisely, "structure follows strategy." Chandler
wrote that:
 "Strategy is the determination of
the basic long-term goals of an
enterprise, and the adoption of
courses of action and the
allocation of resources
necessary for carrying out these
goals."[11]

Igor Ansoff built on Chandler's work by adding

concepts and inventing a vocabulary. He
developed a grid that compared strategies for
market penetration, product development, market
development and horizontal and vertical
integration and diversification. He felt that
management could use the grid to systematically
prepare for the future. In his 1965 classic Corporate
Strategy, he developed gap analysis to clarify the
gap between the current reality and the goals and
to develop what he called "gap reducing
actions".[28] Ansoff wrote that strategic
management had three parts: strategic planning;
the skill of a firm in converting its plans into reality;
and the skill of a firm in managing its own internal
resistance to change.[29]

Bruce Henderson, founder of the Boston Consulting

Group, wrote about the concept of the experience
curve in 1968, following initial work begun in 1965.
The experience curve refers to a hypothesis that
unit production costs decline by 20–30% every
time cumulative production doubles. This supported
the argument for achieving higher market share
and economies of scale.[30]

Porter wrote in 1980 that companies have to make

choices about their scope and the type of
competitive advantage they seek to achieve,
whether lower cost or differentiation. The idea of
strategy targeting particular industries and
customers (i.e., competitive positions) with a
differentiated offering was a departure from the
experience-curve influenced strategy paradigm,
which was focused on larger scale and lower
cost.[19] Porter revised the strategy paradigm
again in 1985, writing that superior performance of
the processes and activities performed by
organizations as part of their value chain is the
foundation of competitive advantage, thereby
outlining a process view of strategy.[31]

Change in focus from production to

marketing

The direction of strategic research also paralleled

a major paradigm shift in how companies
competed, specifically a shift from the production
focus to market focus. The prevailing concept in
strategy up to the 1950s was to create a product
of high technical quality. If you created a product
that worked well and was durable, it was assumed
you would have no difficulty profiting. This was
called the production orientation. Henry Ford
famously said of the Model T car: "Any customer
can have a car painted any color that he wants, so
long as it is black."[32]

Management theorist Peter F Drucker wrote in

1954 that it was the customer who defined what
business the organization was in.[14] In 1960
Theodore Levitt argued that instead of producing
products then trying to sell them to the customer,
businesses should start with the customer, find out
what they wanted, and then produce it for them.
The fallacy of the production orientation was also
referred to as marketing myopia in an article of
the same name by Levitt.[33]

Over time, the customer became the driving force

behind all strategic business decisions. This
marketing concept, in the decades since its
introduction, has been reformulated and
repackaged under names including market
orientation, customer orientation, customer
intimacy, customer focus, customer-driven and
market focus.

Jim Collins wrote in 1997

It's more important
that the strategic frame than ever to define
of reference is expanded yourself in terms of
by focusing on why a what you stand for
company exists rather rather than what you

than what it makes.[34] In make, because what

you make is going to
2001, he recommended
become outmoded
that organizations define
faster than it has at
any time in the past.
themselves based on Jim Collins[34]

three key questions:

What are we passionate about?

What can we be best in the world at?
What drives our economic engine?[35]

Nature of strategy

In 1985, Professor Ellen Earle-Chaffee summarized

what she thought were the main elements of
strategic management theory where consensus
generally existed as of the 1970s, writing that
strategic management:[10]

Involves adapting the organization to its

business environment;
Is fluid and complex. Change creates novel
combinations of circumstances requiring
unstructured non-repetitive responses;
Affects the entire organization by providing
direction;
Involves both strategy formulation processes
and also implementation of the content of the
strategy;
May be planned (intended) and unplanned
(emergent);
Is done at several levels: overall corporate
strategy, and individual business strategies; and
Involves both conceptual and analytical thought
processes.
Chaffee further wrote that research up to that
point covered three models of strategy, which
were not mutually exclusive:

1. Linear strategy: A planned determination of

goals, initiatives, and allocation of resources,
along the lines of the Chandler definition
above. This is most consistent with strategic
planning approaches and may have a long
planning horizon. The strategist "deals with"
the environment but it is not the central
concern.
2. Adaptive strategy: In this model, the
organization's goals and activities are
primarily concerned with adaptation to the
environment, analogous to a biological
 organism. The need for continuous adaption
reduces or eliminates the planning window.
There is more focus on means (resource
mobilization to address the environment)
rather than ends (goals). Strategy is less
centralized than in the linear model.
3. Interpretive strategy: A more recent and
less developed model than the linear and
adaptive models, interpretive strategy is
concerned with "orienting metaphors
constructed for the purpose of
conceptualizing and guiding individual
attitudes or organizational participants." The
aim of interpretive strategy is legitimacy or
credibility in the mind of stakeholders. It
places emphasis on symbols and language to
 influence the minds of customers, rather
than the physical product of the
organization.[10]

Concepts and frameworks

The progress of strategy since 1960 can be
charted by a variety of frameworks and concepts
introduced by management consultants and
academics. These reflect an increased focus on
cost, competition and customers. These "3 Cs"
were illuminated by much more robust empirical
analysis at ever-more granular levels of detail, as
industries and organizations were disaggregated
into business units, activities, processes, and
individuals in a search for sources of competitive
advantage.[24]
SWOT analysis

A SWOT analysis, with its four elements in a 2×2 matrix.

By the 1960s, the capstone business policy course

at the Harvard Business School included the
concept of matching the distinctive competence of
a company (its internal strengths and
weaknesses) with its environment (external
opportunities and threats) in the context of its
objectives. This framework came to be known by
the acronym SWOT and was "a major step forward
in bringing explicitly competitive thinking to bear
on questions of strategy". Kenneth R. Andrews
helped popularize the framework via a 1963
conference and it remains commonly used in
practice.[5]

Experience curve

The experience curve was developed by the

Boston Consulting Group in 1966.[24] It is a
hypothesis that total per unit costs decline
systematically by as much as 15–25% every time
cumulative production (i.e., "experience") doubles.
It has been empirically confirmed by some firms at
various points in their history.[36] Costs decline due
to a variety of factors, such as the learning curve,
substitution of labor for capital (automation), and
technological sophistication. Author Walter Kiechel
wrote that it reflected several insights, including:

A company can always improve its cost

structure;
Competitors have varying cost positions based
on their experience;
Firms could achieve lower costs through higher
market share, attaining a competitive
advantage; and
An increased focus on empirical analysis of
costs and processes, a concept which author
Kiechel refers to as "Greater Taylorism".
Kiechel wrote in 2010: "The experience curve was,
simply, the most important concept in launching
the strategy revolution...with the experience curve,
the strategy revolution began to insinuate an acute
awareness of competition into the corporate
consciousness." Prior to the 1960s, the word
competition rarely appeared in the most prominent
management literature; U.S. companies then faced
considerably less competition and did not focus on
performance relative to peers. Further, the
experience curve provided a basis for the retail
sale of business ideas, helping drive the
management consulting industry.[24]

Corporate strategy and portfolio

theory
Portfolio growth–share matrix

The concept of the corporation as a portfolio of

business units, with each plotted graphically based
on its market share (a measure of its competitive
position relative to its peers) and industry growth
rate (a measure of industry attractiveness), was
summarized in the growth–share matrix
developed by the Boston Consulting Group around
1970. By 1979, one study estimated that 45% of
the Fortune 500 companies were using some
variation of the matrix in their strategic planning.
This framework helped companies decide where to
invest their resources (i.e., in their high market
share, high growth businesses) and which
businesses to divest (i.e., low market share, low
growth businesses.)[24] C. K. Prahalad and Gary
Hamel suggested that companies should build
portfolios of businesses around shared technical or
operating competencies, and should develop
structures and processes to enhance their core
competencies.[37]

Porter wrote in 1987 that corporate strategy

involves two questions: 1) What business should the
corporation be in? and 2) How should the corporate
office manage its business units? He mentioned
four concepts of corporate strategy; the latter
three can be used together:[38]

1. Portfolio theory: A strategy based primarily

on diversification through acquisition. The
corporation shifts resources among the units
and monitors the performance of each
business unit and its leaders. Each unit
generally runs autonomously, with limited
interference from the corporate center
provided goals are met.
2. Restructuring: The corporate office acquires
then actively intervenes in a business where
it detects potential, often by replacing
 management and implementing a new
business strategy.
3. Transferring skills: Important managerial
skills and organizational capability are
essentially spread to multiple businesses.
The skills must be necessary to competitive
advantage.
4. Sharing activities: Ability of the combined
corporation to leverage centralized
functions, such as sales, finance, etc.
thereby reducing costs.[38]

Other techniques were developed to analyze the

relationships between elements in a portfolio. The
growth-share matrix, a part of B.C.G. Analysis, was
followed by G.E. multi factoral model, developed by
General Electric. Companies continued to diversify
as conglomerates until the 1980s, when
deregulation and a less restrictive anti-trust
environment led to the view that a portfolio of
operating divisions in different industries was
worth more as many independent companies,
leading to the breakup of many conglomerates.[24]
While the popularity of portfolio theory has waxed
and waned, the key dimensions considered
(industry attractiveness and competitive position)
remain central to strategy.[5]

Competitive advantage

In 1980, Porter defined the two types of

competitive advantage an organization can
achieve relative to its rivals: lower cost or
differentiation. This advantage derives from
attribute(s) that allow an organization to
outperform its competition, such as superior
market position, skills, or resources. In Porter's
view, strategic management should be concerned
with building and sustaining competitive
advantage.[31]

Industry structure and profitability

A graphical representation of Porter's Five Forces

Porter developed a framework for analyzing the

profitability of industries and how those profits are
divided among the participants in 1980. In five
forces analysis he identified the forces that shape
the industry structure or environment. The
framework involves the bargaining power of buyers
and suppliers, the threat of new entrants, the
availability of substitute products, and the
competitive rivalry of firms in the industry. These
forces affect the organization's ability to raise its
prices as well as the costs of inputs (such as raw
materials) for its processes.[19]
The five forces framework helps describe how a
firm can use these forces to obtain a sustainable
competitive advantage, either lower cost or
differentiation. Companies can maximize their
profitability by competing in industries with
favorable structure. Competitors can take steps to
grow the overall profitability of the industry, or to
take profit away from other parts of the industry
structure. Porter modified Chandler's dictum about
structure following strategy by introducing a
second level of structure: while organizational
structure follows strategy, it in turn follows industry
structure.[19]

Generic competitive strategies

Michael Porter's Three Generic Strategies

Porter wrote in 1980 that strategy target either

cost leadership, differentiation, or focus.[19] These
are known as Porter's three generic strategies
and can be applied to any size or form of business.
Porter claimed that a company must only choose
one of the three or risk that the business would
waste precious resources. Porter's generic
strategies detail the interaction between cost
minimization strategies, product differentiation
strategies, and market focus strategies.

Porter described an industry as having multiple

segments that can be targeted by a firm. The
breadth of its targeting refers to the competitive
scope of the business. Porter defined two types of
competitive advantage: lower cost or
differentiation relative to its rivals. Achieving
competitive advantage results from a firm's ability
to cope with the five forces better than its rivals.
Porter wrote: "[A]chieving competitive advantage
requires a firm to make a choice...about the type of
competitive advantage it seeks to attain and the
scope within which it will attain it." He also wrote:
"The two basic types of competitive advantage
[differentiation and lower cost] combined with the
scope of activities for which a firm seeks to
achieve them lead to three generic strategies for
achieving above average performance in an
industry: cost leadership, differentiation and focus.
The focus strategy has two variants, cost focus
and differentiation focus."[31]

The concept of choice was a different perspective

on strategy, as the 1970s paradigm was the pursuit
of market share (size and scale) influenced by the
experience curve. Companies that pursued the
highest market share position to achieve cost
advantages fit under Porter's cost leadership
generic strategy, but the concept of choice
regarding differentiation and focus represented a
new perspective.[24]

Value chain

Michael Porter's Value Chain

Porter's 1985 description of the value chain refers

to the chain of activities (processes or collections
of processes) that an organization performs in
order to deliver a valuable product or service for
the market. These include functions such as
inbound logistics, operations, outbound logistics,
marketing and sales, and service, supported by
systems and technology infrastructure. By aligning
the various activities in its value chain with the
organization's strategy in a coherent way, a firm
can achieve a competitive advantage. Porter also
wrote that strategy is an internally consistent
configuration of activities that differentiates a firm
from its rivals. A robust competitive position
cumulates from many activities which should fit
coherently together.[39]

Porter wrote in 1985: "Competitive advantage

cannot be understood by looking at a firm as a
whole. It stems from the many discrete activities a
firm performs in designing, producing, marketing,
delivering and supporting its product. Each of
these activities can contribute to a firm's relative
cost position and create a basis for
differentiation...the value chain disaggregates a
firm into its strategically relevant activities in
order to understand the behavior of costs and the
existing and potential sources of differentiation."[5]

Core competence

Gary Hamel and C. K. Prahalad described the idea

of core competency in 1990, the idea that each
organization has some capability in which it excels
and that the business should focus on opportunities
in that area, letting others go or outsourcing them.
Further, core competency is difficult to duplicate,
as it involves the skills and coordination of people
across a variety of functional areas or processes
used to deliver value to customers. By outsourcing,
companies expanded the concept of the value
chain, with some elements within the entity and
others without.[40] Core competency is part of a
branch of strategy called the resource-based view
of the firm, which postulates that if activities are
strategic as indicated by the value chain, then the
organization's capabilities and ability to learn or
adapt are also strategic.[5]

Theory of the business

Peter Drucker wrote in 1994 about the "Theory of
the Business," which represents the key
assumptions underlying a firm's strategy. These
assumptions are in three categories: a) the
external environment, including society, market,
customer, and technology; b) the mission of the
organization; and c) the core competencies
needed to accomplish the mission. He continued
that a valid theory of the business has four
specifications: 1) assumptions about the
environment, mission, and core competencies
must fit reality; 2) the assumptions in all three
areas have to fit one another; 3) the theory of the
business must be known and understood
throughout the organization; and 4) the theory of
the business has to be tested constantly.
He wrote that organizations get into trouble when
the assumptions representing the theory of the
business no longer fit reality. He used an example
of retail department stores, where their theory of
the business assumed that people who could afford
to shop in department stores would do so.
However, many shoppers abandoned department
stores in favor of specialty retailers (often located
outside of malls) when time became the primary
factor in the shopping destination rather than
income.

Drucker described the theory of the business as a

"hypothesis" and a "discipline." He advocated
building in systematic diagnostics, monitoring and
testing of the assumptions comprising the theory
of the business to maintain competitiveness.[41]

Strategic thinking
Strategic thinking involves the generation and
application of unique business insights to
opportunities intended to create competitive
advantage for a firm or organization. It involves
challenging the assumptions underlying the
organization's strategy and value proposition.
Mintzberg wrote in 1994 that it is more about
synthesis (i.e., "connecting the dots") than analysis
(i.e., "finding the dots"). It is about "capturing what
the manager learns from all sources (both the soft
insights from his or her personal experiences and
the experiences of others throughout the
organization and the hard data from market
research and the like) and then synthesizing that
learning into a vision of the direction that the
business should pursue." Mintzberg argued that
strategic thinking is the critical part of formulating
strategy, more so than strategic planning
exercises.[42]

General Andre Beaufre wrote in 1963 that strategic

thinking "is a mental process, at once abstract and
rational, which must be capable of synthesizing
both psychological and material data. The
strategist must have a great capacity for both
analysis and synthesis; analysis is necessary to
assemble the data on which he makes his
diagnosis, synthesis in order to produce from these
data the diagnosis itself--and the diagnosis in fact
amounts to a choice between alternative courses
of action."[43]

Will Mulcaster[44] argued that while much research

and creative thought has been devoted to
generating alternative strategies, too little work
has been done on what influences the quality of
strategic decision making and the effectiveness
with which strategies are implemented. For
instance, in retrospect it can be seen that the
financial crisis of 2008–9 could have been
avoided if the banks had paid more attention to
the risks associated with their investments, but
how should banks change the way they make
decisions to improve the quality of their decisions
in the future? Mulcaster's Managing Forces
framework addresses this issue by identifying 11
forces that should be incorporated into the
processes of decision making and strategic
implementation. The 11 forces are: Time; Opposing
forces; Politics; Perception; Holistic effects;
Adding value; Incentives; Learning capabilities;
Opportunity cost; Risk and Style.

Strategic planning
Strategic planning is a means of administering the
formulation and implementation of strategy.
Strategic planning is analytical in nature and
refers to formalized procedures to produce the
data and analyses used as inputs for strategic
thinking, which synthesizes the data resulting in
the strategy. Strategic planning may also refer to
control mechanisms used to implement the
strategy once it is determined. In other words,
strategic planning happens around the strategy
formation process.[13]

Environmental analysis

Porter wrote in 1980 that formulation of

competitive strategy includes consideration of four
key elements:

1. Company strengths and weaknesses;

 2. Personal values of the key implementers
(i.e., management and the board)
3. Industry opportunities and threats; and
4. Broader societal expectations.[19]

The first two elements relate to factors internal to

the company (i.e., the internal environment), while
the latter two relate to factors external to the
company (i.e., the external environment).[19]

There are many analytical frameworks which

attempt to organize the strategic planning
process. Examples of frameworks that address the
four elements described above include:

External environment: PEST analysis or STEEP

analysis is a framework used to examine the
remote external environmental factors that can
affect the organization, such as political,
economic, social/demographic, and
technological. Common variations include SLEPT,
PESTLE, STEEPLE, and STEER analysis, each of
which incorporates slightly different emphases.
Industry environment: The Porter Five Forces
Analysis framework helps to determine the
competitive rivalry and therefore attractiveness
of a market. It is used to help determine the
portfolio of offerings the organization will provide
and in which markets.
Relationship of internal and external
environment: SWOT analysis is one of the most
basic and widely used frameworks, which
 examines both internal elements of the
organization—Strengths and Weaknesses—and
external elements—Opportunities and Threats.
It helps examine the organization's resources in
the context of its environment.

Scenario planning

A number of strategists use scenario planning

techniques to deal with change. The way Peter
Schwartz put it in 1991 is that strategic outcomes
cannot be known in advance so the sources of
competitive advantage cannot be
predetermined.[45] The fast changing business
environment is too uncertain for us to find
sustainable value in formulas of excellence or
competitive advantage. Instead, scenario planning
is a technique in which multiple outcomes can be
developed, their implications assessed, and their
likeliness of occurrence evaluated. According to
Pierre Wack, scenario planning is about insight,
complexity, and subtlety, not about formal analysis
and numbers.[46] The flowchart to the right
provides a process for classifying a phenomena as
a scenario in the intuitive logics tradition.[47]

Process for classifying a phenomena as a scenario in the

Intuitive Logics tradition.
Some business planners are starting to use a
complexity theory approach to strategy.
Complexity can be thought of as chaos with a dash
of order.[48] Chaos theory deals with turbulent
systems that rapidly become disordered.
Complexity is not quite so unpredictable. It involves
multiple agents interacting in such a way that a
glimpse of structure may appear.

Measuring and controlling

implementation

Generic Strategy Map illustrating four elements of a balanced

Generic Strategy Map illustrating four elements of a balanced
scorecard

Once the strategy is determined, various goals and

measures may be established to chart a course for
the organization, measure performance and control
implementation of the strategy. Tools such as the
balanced scorecard and strategy maps help
crystallize the strategy, by relating key measures
of success and performance to the strategy.
These tools measure financial, marketing,
production, organizational development, and
innovation measures to achieve a 'balanced'
perspective. Advances in information technology
and data availability enable the gathering of more
information about performance, allowing managers
to take a much more analytical view of their
business than before.

Strategy may also be organized as a series of

"initiatives" or "programs", each of which comprises
one or more projects. Various monitoring and
feedback mechanisms may also be established,
such as regular meetings between divisional and
corporate management to control implementation.

Evaluation

A key component to strategic management which

is often overlooked when planning is evaluation.
There are many ways to evaluate whether or not
strategic priorities and plans have been achieved,
one such method is Robert Stake's Responsive
Evaluation.[49] Responsive evaluation provides a
naturalistic and humanistic approach to program
evaluation. In expanding beyond the goal-oriented
or pre-ordinate evaluation design, responsive
evaluation takes into consideration the program's
background (history), conditions, and transactions
among stakeholders. It is largely emergent, the
design unfolds as contact is made with
stakeholders.

Limitations
While strategies are established to set direction,
focus effort, define or clarify the organization, and
provide consistency or guidance in response to the
environment, these very elements also mean that
certain signals are excluded from consideration or
de-emphasized. Mintzberg wrote in 1987: "Strategy
is a categorizing scheme by which incoming stimuli
can be ordered and dispatched." Since a strategy
orients the organization in a particular manner or
direction, that direction may not effectively match
the environment, initially (if a bad strategy) or
over time as circumstances change. As such,
Mintzberg continued, "Strategy [once established]
is a force that resists change, not encourages
it."[12]

Therefore, a critique of strategic management is

that it can overly constrain managerial discretion
in a dynamic environment. "How can individuals,
organizations and societies cope as well as
possible with ... issues too complex to be fully
understood, given the fact that actions initiated on
the basis of inadequate understanding may lead to
significant regret?"[50] Some theorists insist on an
iterative approach, considering in turn objectives,
implementation and resources.[51] I.e., a
"...repetitive learning cycle [rather than] a linear
progression towards a clearly defined final
destination."[52] Strategies must be able to adjust
during implementation because "humans rarely can
proceed satisfactorily except by learning from
experience; and modest probes, serially modified
on the basis of feedback, usually are the best
method for such learning."[53]
In 2000, Gary Hamel coined the term strategic
convergence to explain the limited scope of the
strategies being used by rivals in greatly differing
circumstances. He lamented that successful
strategies are imitated by firms that do not
understand that for a strategy to work, it must
account for the specifics of each situation.[54]
Woodhouse and Collingridge claim that the
essence of being “strategic” lies in a capacity for
"intelligent trial-and error"[53] rather than strict
adherence to finely honed strategic plans.
Strategy should be seen as laying out the general
path rather than precise steps.[55] Means are as
likely to determine ends as ends are to determine
means.[56] The objectives that an organization
might wish to pursue are limited by the range of
feasible approaches to implementation. (There will
usually be only a small number of approaches that
will not only be technically and administratively
possible, but also satisfactory to the full range of
organizational stakeholders.) In turn, the range of
feasible implementation approaches is determined
by the availability of resources.

Strategic themes
Various strategic approaches used across
industries (themes) have arisen over the years.
These include the shift from product-driven
demand to customer- or marketing-driven demand
(described above), the increased use of self-
service approaches to lower cost, changes in the
value chain or corporate structure due to
globalization (e.g., off-shoring of production and
assembly), and the internet.

Self-service

One theme in strategic competition has been the

trend towards self-service, often enabled by
technology, where the customer takes on a role
previously performed by a worker to lower costs
for the firm and perhaps prices.[9] Examples
include:

Automated teller machine (ATM) to obtain cash

rather via a bank teller;
 Self-service at the gas pump rather than with
help from an attendant;
Retail internet orders input by the customer
rather than a retail clerk, such as online book
sales;
Mass-produced ready-to-assemble furniture
transported by the customer;
Self-checkout at the grocery store; and
Online banking and bill payment.[57]

Globalization and the virtual firm

One definition of globalization refers to the

integration of economies due to technology and
supply chain process innovation. Companies are no
longer required to be vertically integrated (i.e.,
designing, producing, assembling, and selling their
products). In other words, the value chain for a
company's product may no longer be entirely
within one firm; several entities comprising a
virtual firm may exist to fulfill the customer
requirement. For example, some companies have
chosen to outsource production to third parties,
retaining only design and sales functions inside
their organization.[9]

Internet and information availability

The internet has dramatically empowered

consumers and enabled buyers and sellers to
come together with drastically reduced
transaction and intermediary costs, creating much
more robust marketplaces for the purchase and
sale of goods and services. Examples include
online auction sites, internet dating services, and
internet book sellers. In many industries, the
internet has dramatically altered the competitive
landscape. Services that used to be provided
within one entity (e.g., a car dealership providing
financing and pricing information) are now
provided by third parties.[58] Further, compared to
traditional media like television, the internet has
caused a major shift in viewing habits through on
demand content which has led to an increasingly
fragmented audience.

Author Phillip Evans said in 2013 that networks are

challenging traditional hierarchies. Value chains
may also be breaking up ("deconstructing") where
information aspects can be separated from
functional activity. Data that is readily available for
free or very low cost makes it harder for
information-based, vertically integrated businesses
to remain intact. Evans said: "The basic story here
is that what used to be vertically integrated,
oligopolistic competition among essentially similar
kinds of competitors is evolving, by one means or
another, from a vertical structure to a horizontal
one. Why is that happening? It's happening
because transaction costs are plummeting and
because scale is polarizing. The plummeting of
transaction costs weakens the glue that holds
value chains together, and allows them to
separate." He used Wikipedia as an example of a
network that has challenged the traditional
encyclopedia business model.[59] Evans predicts
the emergence of a new form of industrial
organization called a "stack", analogous to a
technology stack, in which competitors rely on a
common platform of inputs (services or
information), essentially layering the remaining
competing parts of their value chains on top of this
common platform.[60]

Sustainability

In the recent decade, sustainability—or ability to

successfully sustain a company in a context of
rapidly changing environmental, social, health, and
economic circumstances—has emerged as crucial
aspect of any strategy development. Research
focusing on corporations and leaders who have
integrated sustainability into commercial strategy
has led to emergence of the concept of
"embedded sustainability" – defined by its authors
Chris Laszlo and Nadya Zhexembayeva as
"incorporation of environmental, health, and social
value into the core business with no trade-off in
price or quality—in other words, with no social or
green premium."[61] Laszlo and Zhexembayeva's
research showed that embedded sustainability
offers at least seven distinct opportunities for
business value and competitive advantage
creation: a) better risk-management, b) increased
efficiency through reduced waste and resource
use, c) better product differentiation, d) new
market entrances, e) enhanced brand and
reputation, f) greater opportunity to influence
industry standards, and g) greater opportunity for
radical innovation.[62] Nadya Zhexembayeva's
2014 research further suggested that innovation
driven by resource depletion can result in
fundamental competitive advantages for a
company's products and services, as well as the
company strategy as a whole, when right
principles of innovation are applied.[63]

Strategy as learning
In 1990, Peter Senge, who had collaborated with
Arie de Geus at Dutch Shell, popularized de Geus'
notion of the "learning organization".[64] The theory
is that gathering and analyzing information is a
necessary requirement for business success in the
information age. To do this, Senge claimed that an
organization would need to be structured such
that:[65]

People can continuously expand their capacity

to learn and be productive.
New patterns of thinking are nurtured.
Collective aspirations are encouraged.
People are encouraged to see the "whole
picture" together.

Senge identified five disciplines of a learning

organization. They are:
Personal responsibility, self-reliance, and
mastery – We accept that we are the masters
of our own destiny. We make decisions and live
with the consequences of them. When a problem
needs to be fixed, or an opportunity exploited,
we take the initiative to learn the required skills
to get it done.
Mental models – We need to explore our
personal mental models to understand the
subtle effect they have on our behaviour.
Shared vision – The vision of where we want to
be in the future is discussed and communicated
to all. It provides guidance and energy for the
journey ahead.
 Team learning – We learn together in teams.
This involves a shift from "a spirit of advocacy
to a spirit of enquiry".
Systems thinking – We look at the whole rather
than the parts. This is what Senge calls the
"Fifth discipline". It is the glue that integrates
the other four into a coherent strategy. For an
alternative approach to the "learning
organization", see Garratt, B. (1987).

Geoffrey Moore (1991) and R. Frank and P. Cook[66]

also detected a shift in the nature of competition.
Markets driven by technical standards or by
"network effects" can give the dominant firm a
near-monopoly.[67] The same is true of networked
industries in which interoperability requires
compatibility between users. Examples include
Internet Explorer's and Amazon's early dominance
of their respective industries. IE's later decline
shows that such dominance may be only
temporary.

Moore showed how firms could attain this enviable

position by using E.M. Rogers' five stage adoption
process and focusing on one group of customers at
a time, using each group as a base for reaching
the next group. The most difficult step is making
the transition between introduction and mass
acceptance. (See Crossing the Chasm). If
successful a firm can create a bandwagon effect
in which the momentum builds and its product
becomes a de facto standard.
Strategy as adapting to
change
In 1969, Peter Drucker coined the phrase Age of
Discontinuity to describe the way change disrupts
lives.[68] In an age of continuity attempts to predict
the future by extrapolating from the past can be
accurate. But according to Drucker, we are now in
an age of discontinuity and extrapolating is
ineffective. He identifies four sources of
discontinuity: new technologies, globalization,
cultural pluralism and knowledge capital.

In 1970, Alvin Toffler in Future Shock described a

trend towards accelerating rates of change.[69] He
illustrated how social and technical phenomena
had shorter lifespans with each generation, and he
questioned society's ability to cope with the
resulting turmoil and accompanying anxiety. In
past eras periods of change were always
punctuated with times of stability. This allowed
society to assimilate the change before the next
change arrived. But these periods of stability had
all but disappeared by the late 20th century. In
1980 in The Third Wave, Toffler characterized this
shift to relentless change as the defining feature
of the third phase of civilization (the first two
phases being the agricultural and industrial
waves).[70]

In 1978, Derek F. Abell (Abell, D. 1978) described

"strategic windows" and stressed the importance
of the timing (both entrance and exit) of any given
strategy. This led some strategic planners to build
planned obsolescence into their strategies.[71]

In 1983, Noel Tichy wrote that because we are all

beings of habit we tend to repeat what we are
comfortable with.[72] He wrote that this is a trap
that constrains our creativity, prevents us from
exploring new ideas, and hampers our dealing with
the full complexity of new issues. He developed a
systematic method of dealing with change that
involved looking at any new issue from three
angles: technical and production, political and
resource allocation, and corporate culture.
In 1989, Charles Handy identified two types of
change.[73] "Strategic drift" is a gradual change
that occurs so subtly that it is not noticed until it is
too late. By contrast, "transformational change" is
sudden and radical. It is typically caused by
discontinuities (or exogenous shocks) in the
business environment. The point where a new
trend is initiated is called a "strategic inflection
point" by Andy Grove. Inflection points can be
subtle or radical.

In 1990, Richard Pascale wrote that relentless

change requires that businesses continuously
reinvent themselves.[74] His famous maxim is
“Nothing fails like success” by which he means
that what was a strength yesterday becomes the
root of weakness today, We tend to depend on
what worked yesterday and refuse to let go of
what worked so well for us in the past. Prevailing
strategies become self-confirming. To avoid this
trap, businesses must stimulate a spirit of inquiry
and healthy debate. They must encourage a
creative process of self-renewal based on
constructive conflict.

In 1996, Adrian Slywotzky showed how changes in

the business environment are reflected in value
migrations between industries, between
companies, and within companies.[75] He claimed
that recognizing the patterns behind these value
migrations is necessary if we wish to understand
the world of chaotic change. In “Profit Patterns”
(1999) he described businesses as being in a state
of strategic anticipation as they try to spot
emerging patterns. Slywotsky and his team
identified 30 patterns that have transformed
industry after industry.[76]

In 1997, Clayton Christensen (1997) took the

position that great companies can fail precisely
because they do everything right since the
capabilities of the organization also define its
disabilities.[77] Christensen's thesis is that
outstanding companies lose their market
leadership when confronted with disruptive
technology. He called the approach to discovering
the emerging markets for disruptive technologies
agnostic marketing, i.e., marketing under the
implicit assumption that no one – not the
company, not the customers – can know how or in
what quantities a disruptive product can or will be
used without the experience of using it.

In 1999, Constantinos Markides reexamined the

nature of strategic planning.[78] He described
strategy formation and implementation as an
ongoing, never-ending, integrated process
requiring continuous reassessment and
reformation. Strategic management is planned and
emergent, dynamic and interactive.

J. Moncrieff (1999) stressed strategy dynamics.[79]

He claimed that strategy is partially deliberate and
partially unplanned. The unplanned element comes
from emergent strategies that result from the
emergence of opportunities and threats in the
environment and from "strategies in action" (ad
hoc actions across the organization).

David Teece pioneered research on resource-

based strategic management and the dynamic
capabilities perspective, defined as “the ability to
integrate, build, and reconfigure internal and
external competencies to address rapidly
changing environments".[80] His 1997 paper (with
Gary Pisano and Amy Shuen) "Dynamic
Capabilities and Strategic Management" was the
most cited paper in economics and business for
the period from 1995 to 2005.[81]
In 2000, Gary Hamel discussed strategic decay,
the notion that the value of every strategy, no
matter how brilliant, decays over time.[54]

Strategy as operational
excellence
Quality

A large group of theorists felt the area where

western business was most lacking was product
quality. W. Edwards Deming,[82] Joseph M. Juran,[83]
A. Kearney,[84] Philip Crosby[85] and Armand
Feignbaum[86] suggested quality improvement
techniques such total quality management (TQM),
continuous improvement (kaizen), lean
manufacturing, Six Sigma, and return on quality
(ROQ).

Contrarily, James Heskett (1988),[87] Earl Sasser

(1995), William Davidow,[88] Len Schlesinger,[89] A.
Paraurgman (1988), Len Berry,[90] Jane Kingman-
Brundage,[91] Christopher Hart, and Christopher
Lovelock (1994), felt that poor customer service
was the problem. They gave us fishbone
diagramming, service charting, Total Customer
Service (TCS), the service profit chain, service
gaps analysis, the service encounter, strategic
service vision, service mapping, and service
teams. Their underlying assumption was that there
is no better source of competitive advantage than
a continuous stream of delighted customers.
Process management uses some of the techniques
from product quality management and some of the
techniques from customer service management. It
looks at an activity as a sequential process. The
objective is to find inefficiencies and make the
process more effective. Although the procedures
have a long history, dating back to Taylorism, the
scope of their applicability has been greatly
widened, leaving no aspect of the firm free from
potential process improvements. Because of the
broad applicability of process management
techniques, they can be used as a basis for
competitive advantage.

Carl Sewell,[92] Frederick F. Reichheld,[93] C.

Gronroos,[94] and Earl Sasser[95] observed that
businesses were spending more on customer
acquisition than on retention. They showed how a
competitive advantage could be found in ensuring
that customers returned again and again. Reicheld
broadened the concept to include loyalty from
employees, suppliers, distributors and shareholders.
They developed techniques for estimating
customer lifetime value (CLV) for assessing long-
term relationships. The concepts begat attempts
to recast selling and marketing into a long term
endeavor that created a sustained relationship
(called relationship selling, relationship marketing,
and customer relationship management). Customer
relationship management (CRM) software became
integral to many firms.
Reengineering

Michael Hammer and James Champy felt that

these resources needed to be restructured.[96] In a
process that they labeled reengineering, firm's
reorganized their assets around whole processes
rather than tasks. In this way a team of people saw
a project through, from inception to completion.
This avoided functional silos where isolated
departments seldom talked to each other. It also
eliminated waste due to functional overlap and
interdepartmental communications.

In 1989 Richard Lester and the researchers at the

MIT Industrial Performance Center identified seven
best practices and concluded that firms must
accelerate the shift away from the mass
production of low cost standardized products. The
seven areas of best practice were:[97]

Simultaneous continuous improvement in cost,

quality, service, and product innovation
Breaking down organizational barriers between
departments
Eliminating layers of management creating
flatter organizational hierarchies.
Closer relationships with customers and
suppliers
Intelligent use of new technology
Global focus
Improving human resource skills
The search for best practices is also called
benchmarking.[98] This involves determining where
you need to improve, finding an organization that is
exceptional in this area, then studying the
company and applying its best practices in your
firm.

Other perspectives on
strategy
Strategy as problem solving

Professor Richard P. Rumelt described strategy as

a type of problem solving in 2011. He wrote that
good strategy has an underlying structure called a
kernel. The kernel has three parts: 1) A diagnosis
that defines or explains the nature of the
challenge; 2) A guiding policy for dealing with the
challenge; and 3) Coherent actions designed to
carry out the guiding policy.[99] President Kennedy
outlined these three elements of strategy in his
Cuban Missile Crisis Address to the Nation of 22
October 1962:

1. Diagnosis: "This Government, as promised,

has maintained the closest surveillance of
the Soviet military buildup on the island of
Cuba. Within the past week, unmistakable
evidence has established the fact that a
series of offensive missile sites is now in
preparation on that imprisoned island. The
purpose of these bases can be none other
 than to provide a nuclear strike capability
against the Western Hemisphere."
2. Guiding Policy: "Our unswerving objective,
therefore, must be to prevent the use of
these missiles against this or any other
country, and to secure their withdrawal or
elimination from the Western Hemisphere."
3. Action Plans: First among seven numbered
steps was the following: "To halt this
offensive buildup a strict quarantine on all
offensive military equipment under shipment
to Cuba is being initiated. All ships of any
kind bound for Cuba from whatever nation or
port will, if found to contain cargoes of
offensive weapons, be turned back."[100]
Active strategic management required active
information gathering and active problem solving.
In the early days of Hewlett-Packard (HP), Dave
Packard and Bill Hewlett devised an active
management style that they called management
by walking around (MBWA). Senior HP managers
were seldom at their desks. They spent most of
their days visiting employees, customers, and
suppliers. This direct contact with key people
provided them with a solid grounding from which
viable strategies could be crafted. Management
consultants Tom Peters and Robert H. Waterman
had used the term in their 1982 book In Search of
Excellence: Lessons From America's Best-Run
Companies.[101] Some Japanese managers employ a
similar system, which originated at Honda, and is
sometimes called the 3 G's (Genba, Genbutsu, and
Genjitsu, which translate into "actual place", "actual
thing", and "actual situation").

Creative vs analytic approaches

In 2010, IBM released a study summarizing three

conclusions of 1500 CEOs around the world: 1)
complexity is escalating, 2) enterprises are not
equipped to cope with this complexity, and 3)
creativity is now the single most important
leadership competency. IBM said that it is needed
in all aspects of leadership, including strategic
thinking and planning.[102]
Similarly, McKeown argued that over-reliance on
any particular approach to strategy is dangerous
and that multiple methods can be used to combine
the creativity and analytics to create an "approach
to shaping the future", that is difficult to copy.[103]

Non-strategic management

A 1938 treatise by Chester Barnard, based on his

own experience as a business executive,
described the process as informal, intuitive, non-
routinized and involving primarily oral, 2-way
communications. Bernard says "The process is the
sensing of the organization as a whole and the
total situation relevant to it. It transcends the
capacity of merely intellectual methods, and the
techniques of discriminating the factors of the
situation. The terms pertinent to it are "feeling",
"judgement", "sense", "proportion", "balance",
"appropriateness". It is a matter of art rather than
science."[104]

In 1973, Mintzberg found that senior managers

typically deal with unpredictable situations so they
strategize in ad hoc, flexible, dynamic, and implicit
ways. He wrote, "The job breeds adaptive
information-manipulators who prefer the live
concrete situation. The manager works in an
environment of stimulus-response, and he develops
in his work a clear preference for live action."[105]
In 1982, John Kotter studied the daily activities of
15 executives and concluded that they spent most
of their time developing and working a network of
relationships that provided general insights and
specific details for strategic decisions. They
tended to use "mental road maps" rather than
systematic planning techniques.[106]

Daniel Isenberg's 1984 study of senior managers

found that their decisions were highly intuitive.
Executives often sensed what they were going to
do before they could explain why.[107] He claimed in
1986 that one of the reasons for this is the
complexity of strategic decisions and the resultant
information uncertainty.[108]
Zuboff claimed that information technology was
widening the divide between senior managers
(who typically make strategic decisions) and
operational level managers (who typically make
routine decisions). She alleged that prior to the
widespread use of computer systems, managers,
even at the most senior level, engaged in both
strategic decisions and routine administration, but
as computers facilitated (She called it "deskilled")
routine processes, these activities were moved
further down the hierarchy, leaving senior
management free for strategic decision making.

In 1977, Abraham Zaleznik distinguished leaders

from managers. He described leaders as
visionaries who inspire, while managers care about
process.[109] He claimed that the rise of managers
was the main cause of the decline of American
business in the 1970s and 1980s. Lack of
leadership is most damaging at the level of
strategic management where it can paralyze an
entire organization.[110]

According to Corner, Kinichi, and Keats,[111]

strategic decision making in organizations occurs
at two levels: individual and aggregate. They
developed a model of parallel strategic decision
making. The model identifies two parallel
processes that involve getting attention, encoding
information, storage and retrieval of information,
strategic choice, strategic outcome and feedback.
The individual and organizational processes
interact at each stage. For instance, competition-
oriented objectives are based on the knowledge of
competing firms, such as their market share.[112]

Strategy as marketing

The 1980s also saw the widespread acceptance of

positioning theory. Although the theory originated
with Jack Trout in 1969, it didn't gain wide
acceptance until Al Ries and Jack Trout wrote their
classic book Positioning: The Battle For Your Mind
(1979). The basic premise is that a strategy should
not be judged by internal company factors but by
the way customers see it relative to the
competition. Crafting and implementing a strategy
involves creating a position in the mind of the
collective consumer. Several techniques enabled
the practical use of positioning theory. Perceptual
mapping for example, creates visual displays of
the relationships between positions.
Multidimensional scaling, discriminant analysis,
factor analysis and conjoint analysis are
mathematical techniques used to determine the
most relevant characteristics (called dimensions
or factors) upon which positions should be based.
Preference regression can be used to determine
vectors of ideal positions and cluster analysis can
identify clusters of positions.

In 1992 Jay Barney saw strategy as assembling the

optimum mix of resources, including human,
technology and suppliers, and then configuring
them in unique and sustainable ways.[113]

James Gilmore and Joseph Pine found competitive

advantage in mass customization.[114] Flexible
manufacturing techniques allowed businesses to
individualize products for each customer without
losing economies of scale. This effectively turned
the product into a service. They also realized that
if a service is mass-customized by creating a
"performance" for each individual client, that
service would be transformed into an "experience".
Their book, The Experience Economy,[115] along with
the work of Bernd Schmitt convinced many to see
service provision as a form of theatre. This school
of thought is sometimes referred to as customer
experience management (CEM).

Information- and technology-driven

strategy

Many industries with a high information component

are being transformed.[116] For example, Encarta
demolished Encyclopædia Britannica (whose sales
have plummeted 80% since their peak of $650
million in 1990) before it was in turn, eclipsed by
collaborative encyclopedias like Wikipedia. The
music industry was similarly disrupted. The
technology sector has provided some strategies
directly. For example, from the software
development industry agile software development
provides a model for shared development
processes.

Peter Drucker conceived of the "knowledge

worker" in the 1950s. He described how fewer
workers would do physical labor, and more would
apply their minds. In 1984, John Naisbitt theorized
that the future would be driven largely by
information: companies that managed information
well could obtain an advantage, however the
profitability of what he called "information float"
(information that the company had and others
desired) would disappear as inexpensive
computers made information more accessible.
Daniel Bell (1985) examined the sociological
consequences of information technology, while
Gloria Schuck and Shoshana Zuboff looked at
psychological factors.[117] Zuboff distinguished
between "automating technologies" and
"informating technologies". She studied the effect
that both had on workers, managers and
organizational structures. She largely confirmed
Drucker's predictions about the importance of
flexible decentralized structure, work teams,
knowledge sharing and the knowledge worker's
central role. Zuboff also detected a new basis for
managerial authority, based on knowledge (also
predicted by Drucker) which she called
"participative management".[118]
Maturity of planning process

McKinsey & Company developed a capability

maturity model in the 1970s to describe the
sophistication of planning processes, with strategic
management ranked the highest. The four stages
include:

1. Financial planning, which is primarily about

annual budgets and a functional focus, with
limited regard for the environment;
2. Forecast-based planning, which includes
multi-year budgets and more robust capital
allocation across business units;
3. Externally oriented planning, where a
thorough situation analysis and competitive
 assessment is performed;
4. Strategic management, where widespread
strategic thinking occurs and a well-defined
strategic framework is used.[24]

PIMS study

The long-term PIMS study, started in the 1960s and

lasting for 19 years, attempted to understand the
Profit Impact of Marketing Strategies (PIMS),
particularly the effect of market share. The initial
conclusion of the study was unambiguous: the
greater a company's market share, the greater
their rate of profit. Market share provides
economies of scale. It also provides experience
curve advantages. The combined effect is
increased profits.[119]
The benefits of high market share naturally led to
an interest in growth strategies. The relative
advantages of horizontal integration, vertical
integration, diversification, franchises, mergers
and acquisitions, joint ventures and organic growth
were discussed. Other research indicated that a
low market share strategy could still be very
profitable. Schumacher (1973),[120] Woo and Cooper
(1982),[121] Levenson (1984),[122] and later Traverso
(2002)[123] showed how smaller niche players
obtained very high returns.

Other influences on business

strategy
Military strategy
In the 1980s business strategists realized that
there was a vast knowledge base stretching back
thousands of years that they had barely examined.
They turned to military strategy for guidance.
Military strategy books such as The Art of War by
Sun Tzu, On War by von Clausewitz, and The Red
Book by Mao Zedong became business classics.
From Sun Tzu, they learned the tactical side of
military strategy and specific tactical
prescriptions. From von Clausewitz, they learned
the dynamic and unpredictable nature of military
action. From Mao, they learned the principles of
guerrilla warfare. Important marketing warfare
books include Business War Games by Barrie
James, Marketing Warfare by Al Ries and Jack
Trout and Leadership Secrets of Attila the Hun by
Wess Roberts.

The four types of business warfare theories are:

Offensive marketing warfare strategies

Defensive marketing warfare strategies
Flanking marketing warfare strategies
Guerrilla marketing warfare strategies

The marketing warfare literature also examined

leadership and motivation, intelligence gathering,
types of marketing weapons, logistics and
communications.

By the twenty-first century marketing warfare

strategies had gone out of favour in favor of non-
confrontational approaches. In 1989, Dudley Lynch
and Paul L. Kordis published Strategy of the
Dolphin: Scoring a Win in a Chaotic World. "The
Strategy of the Dolphin" was developed to give
guidance as to when to use aggressive strategies
and when to use passive strategies. A variety of
aggressiveness strategies were developed.

In 1993, J. Moore used a similar metaphor.[124]

Instead of using military terms, he created an
ecological theory of predators and prey(see
ecological model of competition), a sort of
Darwinian management strategy in which market
interactions mimic long term ecological stability.
Author Phillip Evans said in 2014 that "Henderson's
central idea was what you might call the
Napoleonic idea of concentrating mass against
weakness, of overwhelming the enemy. What
Henderson recognized was that, in the business
world, there are many phenomena which are
characterized by what economists would call
increasing returns—scale, experience. The more
you do of something, disproportionately the better
you get. And therefore he found a logic for
investing in such kinds of overwhelming mass in
order to achieve competitive advantage. And that
was the first introduction of essentially a military
concept of strategy into the business world. ... It
was on those two ideas, Henderson's idea of
increasing returns to scale and experience, and
Porter's idea of the value chain, encompassing
heterogenous elements, that the whole edifice of
business strategy was subsequently erected."[125]

Traits of successful
companies
Like Peters and Waterman a decade earlier, James
Collins and Jerry Porras spent years conducting
empirical research on what makes great
companies. Six years of research uncovered a key
underlying principle behind the 19 successful
companies that they studied: They all encourage
and preserve a core ideology that nurtures the
company. Even though strategy and tactics
change daily, the companies, nevertheless, were
able to maintain a core set of values. These core
values encourage employees to build an
organization that lasts. In Built To Last (1994) they
claim that short term profit goals, cost cutting, and
restructuring will not stimulate dedicated
employees to build a great company that will
endure.[126] In 2000 Collins coined the term "built to
flip" to describe the prevailing business attitudes in
Silicon Valley. It describes a business culture
where technological change inhibits a long term
focus. He also popularized the concept of the BHAG
(Big Hairy Audacious Goal).

Arie de Geus (1997) undertook a similar study and

obtained similar results.[127] He identified four key
traits of companies that had prospered for 50
years or more. They are:

Sensitivity to the business environment – the

ability to learn and adjust
Cohesion and identity – the ability to build a
community with personality, vision, and purpose
Tolerance and decentralization – the ability to
build relationships
Conservative financing

A company with these key characteristics he

called a living company because it is able to
perpetuate itself. If a company emphasizes
knowledge rather than finance, and sees itself as
an ongoing community of human beings, it has the
potential to become great and endure for decades.
Such an organization is an organic entity capable
of learning (he called it a "learning organization")
and capable of creating its own processes, goals,
and persona.[127]

Will Mulcaster[128] suggests that firms engage in a

dialogue that centres around these questions:

Will the proposed competitive advantage create

Perceived Differential Value?"
Will the proposed competitive advantage create
something that is different from the
competition?"
Will the difference add value in the eyes of
potential customers?" – This question will entail
 a discussion of the combined effects of price,
product features and consumer perceptions.
Will the product add value for the firm?" –
Answering this question will require an
examination of cost effectiveness and the
pricing strategy.

See also
Balanced Dynamic Management Str
scorecard capabilities consulting (ga
Business Integrated Military the
analysis business strategy Str
Business planning Morphological dyn
model Marketing analysis Str
Business Marketing Overall pla
plan plan equipment Str
Concept- Marketing effectiveness Ma
driven strategies Real options Soc
strategy Management valuation Str
Cost Results- ma
overrun based Str
management Ma
Lan
 Revenue Str
shortfall vis
Va
mig
Six
Mo
Adv
pur

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Further reading
Cameron, Bobby Thomas. (2014). Using
responsive evaluation in Strategic
Management .Strategic Leadership Review 4
(2), 22-27.
David Besanko, David Dranove, Scott Schaefer,
and Mark Shanley (2012) Economics of
Strategy, John Wiley & Sons, ISBN 978-
1118273630
Edwards, Janice et al. Mastering Strategic
Management- 1st Canadian Edition . BC Open
Textbooks, 2014.
Kemp, Roger L. "Strategic Planning for Local
Government: A Handbook for Officials and
Citizens," McFarland and Co., Inc., Jefferson, NC,
 USA, and London, England, UK, 2008 (ISBN 978-
0-7864-3873-0)
Kvint, Vladimir (2009) The Global Emerging
Market: Strategic Management and Economics
Excerpt from Google Books
Pankaj Ghemawhat - Harvard Strategy
Professor: Competition and Business Strategy in
Historical Perspective Social Science History
Network-Spring 2002

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