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UVA-S-0166 What is Strategic Management?
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UVA-S-0166 January 11, 2010
WHAT IS STRATEGIC MANAGEMENT? Corporate strategy is the pattern 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 noneconomic contribution it intends to make to its shareholders, employees, customers, and communities. —Kenneth Andrews1 All the classic definitions of strategy, of which this is one, highlight its complex nature.2 Strategic management encompasses several different sets of considerations whose relative emphasis by business strategists, consultants, and academic researchers has changed over time, as ideas have evolved about the application of competitive thinking to the collective enterprise of value creation.3 Through case discussion, we will highlight several of these considerations, ultimately focusing on the use of corporate and business strategy to create value, which will be one of your primary roles as a manager and leader. Kenneth R. Andrews, The Concept of Corporate Strategy (New York: Dow Jones-Irwin, 1971). For examples of foundational work in strategic management, see Andrews; Michael E. Porter, Competitive Strategy (New York: The Free Press, 1980); H. Igor Ansoff, Corporate Strategy (Columbus, OH: McGraw-Hill, 1965) and Strategic Management (New York: Macmillan, 1979); and Alfred D. Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962). 3 For a discussion of the evolution of the central ideas in business strategy, see Pankaj Ghemawat, “Competition and Business Strategy in Historical Perspective,” Business History Review 76 (Spring 2002): 37–74. For an explanation of the different schools of thought in strategy, see also Henry Mintzberg and Joseph Lampel, “Reflecting on the Strategy Process,” MIT Sloan Management Review (Spring 1999): 21–30. 1 2
This note was prepared by Ming-Jer Chen, Leslie E. Grayson Professor of Business Administration; Gregory B. Fairchild, Associate Professor of Business Administration; R. Edward Freeman, Elis & Signe Olsson Professor of Business Administration; Jared D. Harris, Assistant Professor of Business Administration; and S. Venkataraman, MasterCard Professor of Business Administration, with additional editing and revision by Jenny Mead, Senior Ethics Research Associate. Copyright 2009 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊
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What does such a role involve? What does “strategy” mean in a business setting? First, strategy is an organizing process that involves both formulation and implementation. Strategic management cannot be conceived as mere operational effectiveness alone, nor as just armchair theorizing and strategic planning; both are important aspects of strategy, and neither is a sufficient conception of strategic management without the other.4 Strategic management is dynamic, involving both content and process, planning and action. Moreover, strategy can be emergent and is often the realization of both intentional strategy formulation and, as the organization acts on those plans, tactical responses to the unexpected. Second, strategic management involves considerations and constraints that originate both inside and outside the firm. Managers must not only be clear about both the firm’s distinguishing features and its organizational objectives, but also be able to marshal its resources and leverage its capabilities to achieve those objectives. Who are we? How do we aim to create value? What capabilities do we need to possess in the future? How will we develop them? A variety of external forces—technological, economic, and competitive—will also affect the firm’s strategy, including the increased global reach of firms, the multinational distribution of labor pools and supply chains, and the worldwide interest and influence of stakeholders of all types. Moreover, in today’s world, the speed and ease of access to information about corporate behavior greatly accentuates the impact of such forces. As such, strategic management requires clear thinking about the economic, technological, and societal environment in which the organization operates and an acute consideration of the activities and capabilities of one’s competitors. Third, strategic management is essentially an integrative exercise. The functional areas of finance, marketing, accounting, operations, and human resources often apply specific paradigms to specific business problems and considerations, usefully setting aside complexity in favor of a sharp focus on various disciplinary considerations. In contrast, strategy is about bringing all the underlying values of these disciplines back together. In practice, business managers do not typically encounter challenges as isolated, atomistic problems with narrow disciplinary implications; rather, they navigate business issues through a whole range of complex, crossdisciplinary considerations. Strategic management is also integrative, as Andrews suggests, insofar as it enables value creation for all stakeholder groups—financiers, employees, customers, suppliers, and communities—and not just one particular stakeholder. Viewed through the integrative lens of strategy, commonly invoked axioms such as “maximizing shareholder returns” can be useful to Regarding the former, see Michael E. Porter, “What is Strategy?” Harvard Business Review, November/December 1996, 61–78; for the latter, see Gary Hamel and C. K. Prahalad, “Strategic Intent,” Harvard Business Review, May/June 1989, 63–76, or Henry Mintzberg and Alexandra McHugh, “Strategy Formulation in an Adhocracy,” Administrative Science Quarterly, June 1985, 160–97. 4
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