Where And How Are The Three Generic Strategies Placed In The Strategic Theory Business Essay

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1. REVIEW OF THE LITERATURE 1.1 The nature of strategy: Where and how are the Three Generic Strategies placed in the strategic theory? Strategy has been taken from the military frame and adapted to businesses, in a parallel process that enables the business strategy to get developed along time

and as situations change the way of doing businesses; but as they come from the

same origin there is not too much difference between both. Strategy has been

defined in militar terms as "A style of thinking; a conscious and deliberate process;

an intensive implementation system; the art of ensuring future success." 5 , but also

as about being different 6 in terms of competitive strategy, where porter explains

that "It means deliberately choosing a different set of activities to deliver a unique

mix of value." 7

Osama El-Kadi in 2008 criticized Porter on his definition of strategy that according

to him made part of the most common concept for strategy and it was: the art of

analysing, projecting and directing campaigns in the way that it was conceived as

an analytic and planned process. On the other hand Osama affirmed: Strategy is

not planning. Strategy deals with competitive situations in an uncontrolled

environment. Planning deals with situations in a controlled environment .

The concept of strategy and the way it is raised on the strategic theory vary

through out the different areas in which strategy has been divided, and in which we

can find: political strategy, economic strategy, military strategy, general strategy,

and finally business strategy that is the area of interest of this thesis.

5 Sun Tzu, The Art of War

6 Michael Porter, What is Strategy? 7

However, those different areas in which strategy has been developed are linked

together in some way due to the nature of strategy that provides to some theories

the right to be valid across different areas and different points of view, sometimes,

creating new applications for strategy within particular areas and contexts. As an

example of this, we can mention that strategies for the war proposed by Sun Tzu

have inspired a developed reasoning applied to business strategy in authors like

Mark McNeilly who wrote: Sun Tzu and the art of business. 8 This nature also

explains why the concept and ideas on strategy either in business or any other

area are likely to be influenced by the whole environment and theoretical

framework, and so, criticized or supported by authors from different backgrounds.

The strategy developed on the organizational theory or so called business strategy

has passed through different stages in which the concept of strategy has taken a

new image, supported or contradicted for different authors ideas, those were also

based on different contexts. From the mentioned stages we can identify different

authors who have described tendencies, by gruping them into schools of thought,

we got the Henry Mintzberg s classification called: ten schools of thought (1990),

in which he grouped 3 normative schools into what he called the classical

approach (in which the positioning school of Porter), and the other 7 as descriptive

schools. Some other classifications like N?si s also included in its schools the

Porterism, making a total of seven. Karl?f described the Porter s generic strategy

as one of its 10 schools of thought. As it is seen, Porter s ideas are described as a

school of thought recognized by various authors, but has been also refused and

criticized to lose validity in the current dynamic environment.

7 Michael Porter, Competitve Strategy: Techniques for analyzing markets and competitors.

8 Some books developed after The art of war (6 th century BC)of Sun Tzu are: Sunzi; Michaelson, Gerald.

Sun Tzu: The art for Managers; 50 Strategic Rules . Avon, MA: OH Adams Media, 2001. Also: McNeilly,

Mark. Sun Tzu and the Art of Business: Six Strategic Principles for Managers. New York: Oxford

University Press, 1996. And finally: Krause, Donald G. The Art of War for Executives: Ancient Knowledge

for Today s Business Professional. New York: Berkley Publishing Group, 1995. 8

The classical approach to strategy in which Porter is classified as in the Positioning

school, has had a considerable impact on businesses during the last 5 decades,

and we can indentify some important basic ideas shared in the works issued under

this approach: an optimistic view of knowledge, where the CEO is recognized as

the only responsible for strategy formation; and centralized and planned processes

that finally bring about explicit strategies. Though, there is a notable ignorance of

the complex inside of organizations. 9 This basis would frame porter s ideas, and so

to limit those, as we will see in the next section.

Porter s traditional ideas are acknowledged as part of the Positioning School that

only recognizes three generic strategies, defining those as ways of competing

based on a previous choice of an attractive superior industry (Porter, 1980) and

aiming to place the company in a good position within this particular industry

(Porter, 1985). Michael Porter is also the founder of this school.

One of the latest classifications for Michael Porter s Position School was named

the boundary school in which Hamel and Al described to be primarly concerned

with research questions such as participation, joint ventures and network and

sector structures. 10

In contrast, Steve Milunovich, compares Porter s ideas with Ries and Trout s ones,

saying that Porter reinvented ancient strategy author s ideas, and that the concept

of strategy remains the same along time, it just differentiates from one to another

on how we apply a theory into the context. This critic from the starting point in the

development of Porter s model makes us think about the context in which he

developed the frame of the three generic strategies, and it was possible to identify

that processes were also analysis and implementation when looking for a future

positive outcome. Additionally, by the moment in which the generic strategies were

9 Strategy Theory C a Short Review of the Literature, Bjorn Haugstad, 1999, page 2

10 Hamel et Al 1989, Ito and Rose 1994, Markides and Williamson, 1994 9

proposed there were stable markets that allowed these strategies to have a

successful implementation on companies, and also the activity of analysis without

highly disturbed environments, allowed tools to be designed and to work, like the

five forces analysis used to provide a real picture of the current situation in which a

company might be involved, and in which a company could put itself into and

model internally its own business and design how was it going to get profits from.

1.2 Porter s Generic Strategies: What does his theory stand for?

1.2.1 What is Competitive Advantage and so Competitive Strategy?

According to Porter, companies must look for having a superior comparable

performance regarding competitors in the same industry, and described that the

competitive advantage is to have a profitability level greater than those in the

industry on the long run. He also described the cost leadership and the

differentiation as the two types of competitive advantage a company can have,

depending on the sources on which it is based on.

In 1985, Proffesor Porter defined competitive advantage as the ability of adding

value in the eyes of consumers, meaning the value perceived might be superior

than the sum of the amount of costs related to the production processes.

Subsequently, Porter s conception of strategy is that it is a matter of competitive

position, that a company creates by differentiating themselves in the eyes of its

valuable customers, including a process of adding value along a structure of

different activities interrelated in a way imperceptible for competitors, and so that

this complex mix differs from those created or used by competitors.

By 1980, Porter defined the competitive strategy as all the offensive or defensive

actions a company does in order to create a favourable and sustainable position

within an industry with the objective of having a superior performance which at the

end will be convert as a considerable ROI (return over investment). Additionally, he

explained that these actions were the response to the competitive five forces that

according to him were the ones that determined the business environment and

competition level around a company.