Strategy is the direction
"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".
In other words, strategy is about:
- Where is the business trying to get to in the long-term (direction) * Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope) * How can the business perform better than the competition in those markets? (advantage)?
- What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?
- What external, environmental factors affect the businesses' ability to compete? (environment)?
- What are the values and expectations of those who have power in and around the business? (stakeholders)
Strategy According to Henry Mintzberg
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Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning , points out that people use "strategy" in several different ways, the most common being these four:
- Strategy is a plan, a "how," a means of getting from here to there.
- Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy.
- Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets.
- Strategy is perspective, that is, vision and direction.
Mintzberg argues that strategy emerges over time as intentions collide with and accommodate a changing reality. Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully crafted plan, with the eventual outcome and strategy reflected in a pattern evident in decisions and actions over time. This pattern in decisions and actions defines what Mintzberg called "realized" or emergent strategy.
Mintzberg's typology has support in the earlier writings of others concerned with strategy in the business world, most notably, Kenneth Andrews, a Harvard Business School professor and for many years editor of the Harvard Business Review.
Strategy According to Kenneth Andrews
Kenneth Andrews presents this lengthy definition of strategy in his book, The Concept of Corporate Strategy :
"Corporate strategy is the pattern [italics added] of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities. (pp.18-19)."
Andrew's definition obviously anticipates Mintzberg's attention to pattern, plan, and perspective. Andrews also draws a distinction between "corporate strategy," which determines the businesses in which a company will compete, and "business strategy," which defines the basis of competition for a given business. Thus, he also anticipated "position" as a form of strategy. Strategy as the basis for competition brings us to another Harvard Business School professor, Michael Porter, the undisputed guru of competitive strategy.
Strategy According to Michael Porter
In a 1996 Harvard Business Review article  and in an earlier book , Porter argues that competitive strategy is "about being different." He adds, "It means deliberately choosing a different set of activities to deliver a unique mix of value." In short, Porter argues that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. In his earlier book, Porter defines competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there." Thus, Porter seems to embrace strategy as both plan and position. (It should be noted that Porter writes about competitive strategy, not about strategy in general.)
Strategy According to Kepner-Tregoe
In Top Management Strategy , Benjamin Tregoe and John Zimmerman, of Kepner-Tregoe, Inc., define strategy as "the framework which guides those choices that determine the nature and direction of an organization." Ultimately, this boils down to selecting products (or services) to offer and the markets in which to offer them. Tregoe and Zimmerman urge executives to base these decisions on a single "driving force" of the business. Although there are nine possible driving forces, only one can serve as the basis for strategy for a given business. The nine possibilities are listed below:
Strategy According to George Steiner
George Steiner, a professor of management and one of the founders of The California Management Review, is generally considered a key figure in the origins and development of strategic planning. His book, Strategic Planning , is close to being a bible on the subject. Yet, Steiner does not bother to define strategy except in the notes at the end of his book. There, he notes that strategy entered the management literature as a way of referring to what one did to counter a competitor's actual or predicted moves. Steiner also points out in his notes that there is very little agreement as to the meaning of strategy in the business world. Some of the definitions in use to which Steiner pointed include the following:
- Strategy is that which top management does that is of great importance to the organization.
- Strategy refers to basic directional decisions, that is, to purposes and missions.
- Strategy consists of the important actions necessary to realize these directions.
- Strategy answers the question: What should the organization be doing?
- Strategy answers the question: What are the ends we seek and how should we achieve them?
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Steiner was writing in 1979, at roughly the mid-point of the rise of strategic planning. Perhaps the confusion surrounding strategy contributed to the demise of strategic planning in the late 1980s. The rise and subsequent fall of strategic planning brings us to Henry Mintzberg.
Strategy at Different Levels of a Business
Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it.
Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement".
Business Unit Strategy - is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.
Operational Strategy - is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.
How Strategy is Managed - Strategic Management
In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above.
In practice, a thorough strategic management process has three main components, shown in the figure below:
This is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including:
PEST Analysis - a technique for understanding the "environment" in which a business operates
Scenario Planning - a technique that builds various plausible views of possible futures for a business
Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry
Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or users
Directional Policy Matrix - a technique which summarises the competitive strength of a businesses operations in specific markets
Competitor Analysis - a wide range of techniques and analysis that seeks to summarise a businesses' overall competitive position
Critical Success Factor Analysis - a technique to identify those areas in which a business must outperform the competition in order to succeed
SWOT Analysis - a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences.
This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options.
Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action.Strategy According to B. H. Liddell Hart
In his book, Strategy , Liddell Hart examines wars and battles from the time of the ancient Greeks through World War II. He concludes that Clausewitz' definition of strategy as "the art of the employment of battles as a means to gain the object of war" is seriously flawed in that this view of strategy intrudes upon policy and makes battle the only means of achieving strategic ends. Liddell Hart observes that Clausewitz later acknowledged these flaws and then points to what he views as a wiser definition of strategy set forth by Moltke: "the practical adaptation of the means placed at a general's disposal to the attainment of the object in view." In Moltke's formulation, military strategy is clearly a means to political ends.
Concluding his review of wars, policy, strategy and tactics, Liddell Hart arrives at this short definition of strategy: "the art of distributing and applying military means to fulfil the ends of policy." Deleting the word "military" from Liddell Hart's definition makes it easy to export the concept of strategy to the business world. That brings us to one of the people considered by many to be the father of strategic planning in the business world: George Steiner.
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The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the 'macro-environment,' the 'micro-environment' and the 'internal environment'.
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence.
This includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.
The internal environment.
All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external. As marketers we call the process of managing internal change 'internal marketing.'
Essentially we use marketing approaches to aid communication and change management.
The external environment can be audited in more detail using other approaches such as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.
Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyse the market for Business Computers i.e. one of its SBUs.
Five forces analsysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
The threat of entry.
- Economies of scale e.g. the benefits associated with bulk purchasing.
- The high or low cost of entry e.g. how much will it cost for the latest technology?
- Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?
- Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects.
- Will competitors retaliate?
- Government action e.g. will new laws be introduced that will weaken our competitive position?
- How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitises the influence of the environment.
The power of buyers.
- This is high where there a few, large players in a market e.g. the large grocery chains.
- If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains.
- The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.
The power of suppliers.
The power of suppliers tends to be a reversal of the power of buyers.
- Where the switching costs are high e.g. Switching from one software supplier to another.
- Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
- There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
- Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.
The threat of substitutes
- Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists.
- Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies.
- We could always do without e.g. cigarettes.
- This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.
In SWOT, strengths and weaknesses are internal factors. For example:A strength could be:
- Your specialist marketing expertise.
- A new, innovative product or service.
- Location of your business.
- Quality processes and procedures.
- Any other aspect of your business that adds value to your product or service.
A weakness could be:
- Lack of marketing expertise.
- Undifferentiated products or services (i.e. in relation to your competitors).
- Location of your business.
- Poor quality goods or services.
- Damaged reputation.
In SWOT, opportunities and threats are external factors. For example: An opportunity could be:
- A developing market such as the Internet.
- Mergers, joint ventures or strategic alliances.
- Moving into new market segments that offer improved profits.
- A new international market.
- A market vacated by an ineffective competitor.
A threat could be:
- A new competitor in your home market.
- Price wars with competitors.
- A competitor has a new, innovative product or service.
- Competitors have superior access to channels of distribution.
- Taxation is introduced on your product or service.
A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too much. Two people rarely come-up with the same final version of SWOT. TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use SWOT as guide and not a prescription.
Simple rules for successful SWOT analysis.
- Be realistic about the strengths and weaknesses of your organization when conducting SWOT analysis.
- SWOT analysis should distinguish between where your organization is today, and where it could be in the future.
- SWOT should always be specific. Avoid grey areas.
- Always apply SWOT in relation to your competition i.e. better than or worse than your competition.
- Keep your SWOT short and simple. Avoid complexity and over analysis
- SWOT is subjective.
Once key issues have been identified with your SWOT analysis, they feed into marketing objectives. SWOT can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a very popular tool with marketing students because it is quick and easy to learn. During the SWOT exercise, list factors in the relevant boxes. It's that simple. Below are some FREE examples of SWOT analysis - click to go straight to them
Do you need a more advanced SWOT Analysis?
Some of the problems that you may encounter with SWOT are as a result of one of its key benefits i.e. its flexibility. Since SWOT analysis can be used in a variety of scenarios, it has to be flexible. However this can lead to a number of anomalies. Problems with basic SWOT analysis can be addressed using a more critical POWER SWOT.
SWOT Analysis Examples
A summary of FREE SWOT analyses case studies are outlined as follows (those in the table above are far more detailed and FREE!):
Example 1 - Wal-Mart SWOT Analysis. Strengths - Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store. Weaknesses - Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control. Opportunities - To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region. Threats - Being number one means that you are the target of competition, locally and globally.
Example 2 - Starbucks SWOT Analysis. Strengths - Starbucks Corporation is a very profitable organization, earning in excess of $600 million in 2004.Weaknesses - Starbucks has a reputation for new product development and creativity. Opportunities - New products and services that can be retailed in their cafes, such as Fair Trade products. Threats - Starbucks are exposed to rises in the cost of coffee and dairy products.
Example 3 - Nike SWOT Analysis. Strengths - Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets. 'Weaknesses - The organization does have a diversified range of sports products. Opportunities - Product development offers Nike many opportunities. Threats - Nike is exposed to the international nature of trade.
Example 4 - Indian Premier League (IPL) SWOT Analysis. Where will you find the Mumbai Indians, the Royal Challengers, the Deccan Chargers, the Channai Super Kings, the Delhi Daredevils, the Kings XI Punjab, the Kolkata Knight Riders and the Rajesthan Royals? In the Indian Premier League (IPL) - the most exciting sports franchise that the World has seen in recent years, with seemingly endless marketing opportunities (and strengths, weaknesses and threats of course!).
Example 5 - Bharti Airtel SWOT Analysis. Weaknesses - An often cited original weakness is that when the business was started by Sunil Bharti Mittal over 15 years ago, the business has little knowledge and experience of how a cellular telephone system actually worked. So the start-up business had to outsource to industry experts in the field.
- The Indian Premier League (IPL) is based upon the Twenty20 cricket game which should be completed in 2 ½ hours. That means that is fast-paced and exciting, and moreover it can be played on a weekday evening or weekend afternoon. That makes it very appealing as a mass sport, just like American Football, Basketball and Soccer. It is appealing as a spectator sport, as well to TV audiences.
- The IPL has employed economists to structure its lead so that revenue is maximized. The more unified the sport, the more successful it is.
- Twenty20 has been so popular that it could replace other forms of cricket i.e. damage the game that generated it.
- Some fans will also have to pay for travel to the ground. There may be large queues for the most popular games. There may be some distance between where the fan lives and the cricket ground.
- Stakes are very high! Some teams may not weather short-term failures and may be too quick to get rid of key managers and players if things don't go well quickly. Famously, Royal Challengers Bangalore (RCB) sacked their CEO Charu Sharma for watching his team lose 6 from their first 8 games.
- Some teams have overpriced their advertising/sponsorship in order to gain some short-term returns (e.g. Royal Challengers), and some sponsors and are moving their investment the more reasonably priced teams.
- Since it has a large potential mass audience, IPL is very attractive as a marketing communications opportunity, especially for advertisers and sponsors.
- The league functions under a number of franchises. Each franchisee is responsible for marketing its team to gain as large a fan-base as possible. The long-term success of all of the franchises lies in the generation of a solid fan-base. The fan-base will generate large TV revenues.
- Different fans will pay different amounts to watch their sport. There will be corporate hospitality, season tickets, away tickets, TV pay-per-view and other ways to segment the market for the IPL.
- There is a huge opportunity for merchandising e.g. sales of shirts, credit cards and other fan memorabilia. Grounds can also sell refreshments and other services during the games.
- Marketers believe that the teenage segments need to be targeted so that they become the long-term fan-base. Their parents and older cricket fans may prefer the longer, more traditional game. The youth market may also impress on their parents that they want them to buy their club's merchandise on their behalf - as a differentiator or status symbol.
- Franchise fees will remain fixed for the up until 2017-18, which means that the investment is safe against inflation which is traditionally relatively high in India.
- The level of competition that the Board of Control for Cricket in India (BCCI) can generate determines long-term viability of the league. If the level of competition drops, then revenue will fall. For example, if the top names in cricket cannot be attracted to India, the appeal of the game will fall. Often getting hold of the big names is a problem - Australian domestic cricket runs concurrent with the IPL and if players move form Australia to India to follow the money then their domestic game will be hit. This is known as 'Free Agency.'
- If the franchisee's fan-base does not generate income then they may not have the cash to pay the salaries of the best players. However, if you invest in the best players and they do not win the trophies, then you may not see a return on your investment. It won't be a quick return on investment - so owners need to be in it for the long-term.
- Franchises are very expensive. The most expensive franchise - Mumbai Indians - was bought by Mukesh Ambani for $111.9 million, whereas the lowest priced franchise - Rajasthan Royals was picked up by Manoj Badale for a mere $67 million.
- The most highly priced teams may not be those that have the early success. Revenues will come from the most highly supported teams.
The Indian Premier League (also known as the "DLF Indian Premier League" for sponsorship reasons; often abbreviated as IPL), is a Twenty20 cricket competition created by the Board of Control for Cricket in India (BCCI).More . . .
- Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets.' Nike has a healthy dislike of is competitors. At the Atlanta Olympics, Reebok went to the expense of sponsoring the games. Nike did not. However Nike sponsored the top athletes and gained valuable coverage.
- Nike has no factories. It does not tie up cash in buildings and manufacturing workers. This makes a very lean organization. Nike is strong at research and development, as is evidenced by its evolving and innovative product range. They then manufacture wherever they can produce high quality product at the lowest possible price. If prices rise, and products can be made more cheaply elsewhere (to the same or better specification), Nike will move production.
- Nike is a global brand. It is the number one sports brand in the World. Its famous 'Swoosh' is instantly recognisable, and Phil Knight even has it tattooed on his ankle.
- The organization does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes.
- The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. Can you tell one sports retailer from another? So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike.
- Product development offers Nike many opportunities. The brand is fiercely defended by its owners whom truly believe that Nike is not a fashion brand. However, like it or not, consumers that wear Nike product do not always buy it to participate in sport. Some would argue that in youth culture especially, Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out i.e. consumers need to replace shoes.
- There is also the opportunity to develop products such as sport wear, sunglasses and jewellery. Such high value items do tend to have associated with them, high profits.
- The business could also be developed internationally, building upon its strong global brand recognition. There are many markets that have the disposable income to spend on high value sports goods. For example, emerging markets such as China and India have a new richer generation of consumers. There are also global marketing events that can be utilised to support the brand such as the World Cup (soccer) and The Olympics.
- Nike is exposed to the international nature of trade. It buys and sells in different currencies and so costs and margins are not stable over long periods of time. Such an exposure could mean that Nike may be manufacturing and/or selling at a loss. This is an issue that faces all global brands.
- The market for sports shoes and garments is very competitive. The model developed by Phil Knight in his Stamford Business School days (high value branded product manufactured at a low cost) is now commonly used and to an extent is no longer a basis for sustainable competitive advantage. Competitors are developing alternative brands to take away Nike's market share.
- As discussed above in weaknesses, the retail sector is becoming price competitive. This ultimately means that consumers are shopping around for a better deal. So if one store charges a price for a pair of sports shoes, the consumer could go to the store along the street to compare prices for the exactly the same item, and buy the cheaper of the two. Such consumer price sensitivity is a potential external threat to Nike.
'If you have a body, you are an athlete' - Bill Bowerman said this a couple of decades ago. The guy was right. It defines how he viewed the world, and it defines how Nike pursues its destiny. Ours is a language of sports, a universally understood lexicon of passion and competition. A lot has happened at Nike in the 30 years More . . .
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