What Is Strategy?
Today’s dynamic markets and technologies have called into question the sustainability of competitive advantage. Under pressure to improve productivity, quality, and speed, managers have embraced tools such as TQM, benchmarking, and reengineering. Dramatic operational improvements have resulted, but rarely have these gains translated into sustainable profitability.
And gradually, the tools have taken the place of strategy. As managers push to improve on all fronts, they move further away from viable competitive positions.
Michael Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. In answering the question ‘what is strategy? ’, some theorists focus more on the role of strategy in allowing a firm to ‘position’ itself in an industry, hence to make choices regarding ‘what game to play’.
Others focus more on the role of strategy in determining how well a given game is played. Strategy is about both: choosing new games to play and playing existing games better. One of the biggest disagreements among strategy researcher concerns the process by which strategies emerge. Some describe stratgy as a rational and deliberate process, while others describer it as an evolutionary process which emerges from experimentation and trial and error. Some place more emphasis on external factors, like the structure of the industry to which he firm belongs (e. g. the industrial organization approach), while others place more emphasis on factors internal to the organization, like the way production is organized (e. g. Resource-Based approach).
Furthermore, some describe a relatively static relationship between strategy and the environment where firms respond to external conditions, while others describe a dynamic picture of competition, where firms not only are influenced by the environment, but also actively seek to change it. (e. g. he Schumpetarian approach). This feedback relationship between firm strategy and the environment is the focus of industry ‘lifecycle’ studies which look at the sources and effectrs of changes in industry structure. Porter(1996) claims that not all business decisions are strategice. Decisions can only be defined as strategic if they involve consciously doing something ‘differently’ from competitors and if that difference results in a sustainable advantage. To be sustainable it must be difficult to imitate.
Activities which simply increase productivity by making existing methods more efficient (‘operational efficiency’) are not strategic since they can be easily copied by others. Although a firm must engage in both types of activiteis, it is strategic activies that will allow it to develop a sustainable superior performance. One of the factors that renders strategies hard to imitate, hence unique, is that they are the result of a complex interaction between diffenrent activities, which is not reducible to the sum of the indicidual activities.
It is this synergy between activities that produces value, not the activities in themselves. Whittingtton(2001) introduces us to four different perspectives on stragey: the classical perspective, the evolutionary persperctive, the processual perspective and the systemic perspective. The classical perspective assumes that the manger has near to complete control over how to allocate the internal and external resources of the firm, and can thus manipulate the internal organization of the firm to better suit these objectives. In this view, strategic behaviour is guided by rationality, opportunism and self-interest.
The evolutionary perspective places emphasis on behacioural differences between firm (e. g. some firms base their descisons on rational caculations, others simply on imitaion) and on the market selection mechanisms that allow some firms to frow and survive and others to fail. This view causes the image of the heroic entrepreneur, centreal to the classical perspective, to fall apart: it is not one manager but the mix between the forces of market selection, random events, and processes of positive feedback that determine performance.
The processual perspectiver holds that economic outcomes emerge from the interactions between individuals and between individuals and their environment. The result of this interacion is unpredictable because actions are often unintended. Humans are not perfectly rational but ‘bounded’ in their rationality. This, along with the fact that interaction between individuals is guided not only by self-interest but alsoby collective bargaining and compromis, causes economic dynamics to be fuzzy and unpredictable.
The systemic perspective argues that each of the above approaches is characterized by a narrow view of the world: a Western, often Anglo-Saxon, view. The ‘rationality’ of a particular strategy depends on its specific historical, social and cultural context. Strategic behaviour is ‘embedded’ in a network of social relations that includes cultural norms, class and educational background, religion and so on. Hence what if labelled as ‘irraional’ behaviour in one context may be perfectly rational in another.