STRATEGY IN THE MODERN WORLD

By Adrian Pryce rd
(Source: Pryce, A. & Thompson, R (2017) Strategy in Process, 3 Edition, ICSA, London)

Contents

1 Definition and purpose

2 History and evolution
3 Strategy in a VUCA world
4 Strategy and management

1 Definitions and purpose

Strategy is a much used word, a word we use in relation to our everyday lives as well as in a
business context. Strategy has many facets and faces. The origin of the word is the Greek
term ‘strategos’, used in military operations and focusing on how to win battles. This aim of
‘winning’ may be an apt metaphor for business, although as we shall see it may not entirely
suitable 100% of the time, given the increasing inter-connectedness of business and growing
trend towards strategic collaboration and ‘co-optition’.

Strategy has come a long way since the days of the ancient Greeks, and it is useful to have
some understanding of the evolution of strategy as a business and management tool. In this
context, and before looking at the history of business strategic thinking, it is appropriate to
start start with some definitions so that readers can develop their own way of articulating
this critical concept for business and its governance.

Here are the definitions of strategy by some business and management authors:

‘The determination of the long run goals and objectives of an enterprise and the
adoption of courses of action and the allocation of resource necessary for carrying
out these goals’ Chandler (1963)

‘The long term direction of an organisation’ Johnson & Scholes (2011)

‘Sound strategy starts with having the right goal.’

‘The essence of strategy is knowing what not to do’.
‘Strategy is about setting yourself apart from the competition. It's not a matter of
being better at what you do - it's a matter of being different at what you do.’
Michael Porter, various

‘A pattern in a stream of decisions’ Mintzberg (2007)

The first two emphasise the long run nature of strategy and the sense of forward direction.
Porter focuses on the goal and its differentiation from the competition. Mintzberg suggests
less certainty and a looking back at what happened, with a kind of post hoc justification of a
series of events. Strategy only visible after the event as it were. None of them mention the
word ‘plan’ or ‘planning’ but they do imply action and implementation as well as some
future goal or objective.

It is important to stress that strategy is more than a plan. It implies a long term perspective,
and is usually far-reaching in an organisation. As it evolves over time, strategy is dynamic,
and indeed interactive in the sense that actions by one organisation will usually generate
reactions by others in its sphere of influence or competitive context. There is an element of
chess about strategy, with an increasing need to think several steps ahead, given the speed
of the modern world and what seems like constant and rapidly accelerating change in the
business environment.

STOP AND THINK

How would you define ‘strategy’ in your own words?

Purpose of strategy

It is clear that strategy has to do with some desired future state, with objectives or goals
that can be broadly or narrowly defined. For organisations, this can range from mere
survival to target market share or profit levels. It may involve key product, market or pricing
decisions, or production and quality issues. Strategy is the hunt for ‘competitive advantage’
– preferably sustainable competitive advantage, although this proving harder all the time,
given the rapid changes in business. Strategy academics now talk in terms of trying to
achieve a series of ‘transient competitive advantages’.

In hard financial terms, with reference to investors and shareholders, strategy is often
focused on a combination of activities that make a return greater than the cost of capital. At
the same time, there is a sense of ‘winning’ a battle in the market place – in simple terms
can an organisation be faster, better or cheaper than the competition in addressing market
needs? Note that the Holy Grail is to be all three at the same time, but in reality an
organisation can only aspire to two out of the three, often within a narrowly defined market
segment, given the proliferation of choice now facing buyers in most categories.

Grant distinguishes between strategy and tactics, although states that the two must be
linked. In his view

• Strategy is the overall analysis and plan for deploying resources to establish a
favourable position
• Tactics are a scheme for a specific initiative that helps achieve this

Here we see a reference to strategy that implies a commitment of resources to something

that is thus not easily reversible. To the extent that implementation of the strategy, and the
tactics needed to do this successfully, involve human resources suggests that a good
strategist must always consider not only the ‘hard’ edge of strategy – the return on
investment of strategy - but also the ‘soft’ side – the history and culture of the organisation,
the morale and motivation of the staff and their alignment with the strategy as
communicated to them.
So why do companies need strategy and what are its benefits? Mintzberg, Ahlstrand and
Lampel suggest that strategy

• Sets direction
o Charts a course that creates cohesion - although it may be the wrong
direction!
• Focuses effort
o Promoting coordination and reducing disorder - but it may lead to suffocating
‘groupthink’
• Defines the organisation
o Capturing essential meaning and creating a shared identity - but this may
lead to a loss of richness and stereotyping or an organisation
• Provides consistency
o Reducing ambiguity - but this may also limit creativity

Furthermore, they add that strategy seeks to find a best ‘fit’ between the organisation and
its context or environment, and this idea of fit is one we will return to shortly as a core
proposition of the strategy process. What should be noted is that these features are quite
broadly defined, leaving scope within an overall frame of reference for some flexibility and
what Mintzberg refers to as ‘emergent’ strategy (see Fig A), the sum of the hundreds and
thousands of individual decisions taken day to day by senior, middle and junior
management.

This neatly links us back to Mintzberg’s terse definition of strategy as ‘a pattern in a stream
of decisions’ and hints at a philosophical difference in viewing strategy amongst the various
strategy schools of thought.

Fig A Emergent Strategy, Mintzberg

TEST YOUR KNOWLEDGE

a) What are the benefits of strategy?
b) How does strategy differ from tactics?
c) What is the significance of the word ‘fit’ in relation to strategy?

2 History and evolution

Strategy and management are intimately linked. As the study of management has evolved
over the past 100+ years since business schools were first created, so has strategy, the
capstone component of an MBA, and it is instructive to take a look at that evolution.
Mintzberg et al have identified ten schools of strategy:

1. Design: a process of conception

2. Planning: a formal process
3. Positioning: an analytical process
4. Entrepreneurial: a visionary process
5. Cognitive: a judgmental process
6. Learning: an emergent process
7. Political: a process of negotiation
8. Cultural: a collective process
9. Environmental: a reactive process
10. Configuration: a process of transformation

Here we will concern ourselves with four main schools of thought:

Planning (1950s-60s)
In many ways strategic management went back to its roots in terms of applying the
sort of planning processes developed during the two world wars, with a new focus
on incremental change, which was often related to growth in the overall economy.

Positioning (1980-90s)
Strategy owes a great debt to one of the most prolific business strategy academics,
Professor Michael Porter, who changed the nature of strategy to consider the
relative positioning of an organisation compared to its competitors. It was no longer
enough to grow by the same or more than the economy, it was important to grow by
the same or more than your industry or sector grew, and thus analyse your position
relative to competitors

Learning (1990s+)
Though it has its origins in the 1960s, this school came more to prominence in the
late 1990s/early 2000s as the pace of change grew and Mintzberg coined the phrase
‘emergent strategy’ as being loose and adaptive.

Environmental (2000s+)
Closely related to the learning school of strategy is the environmental school and a
focus on scanning and monitoring the external environment to react to or better still
anticipate the drivers of change in an industry so as to capture the opportunities or
mitigate the threats that may arise.

These schools of thought have evolved as the business environment has changed. Over the
years in question there have been significant shifts of emphasis of strategy, from seeking
revenue growth in times of boom to survival and cost control in times of recession and
austerity. In that sense, though the hunt for competitive advantage is unchanged, the
context in which strategy is crafted varies considerably.
There are other factors and forces that business needs to take into account that are
impacting on strategy, covered in this book but introduced here as a fundamental backcloth
to any strategy formulation. Where business was once able to pursue the straightforward
goal of maximising shareholder value, especially for publicly quoted companies which
focused on short term quarterly earnings growth, there is now a growing emphasis on
stakeholder value and the long term.

Business strategists ignore this at their peril, as external forces in society are driving this –
with significant political as well as social pressure for business to adapt and respond to
major failings in the free market, capitalist economic context that has dominated the global
business environment in the past century.

TEST YOUR KNOWLEDGE

a) What are the key four main schools of strategic thinking?
b) What is ‘emergent’ strategy?

3 Strategy in a VUCA world

Globalisation is a fact of life – we live in an increasingly inter-connected world, well beyond

the simplicity of trade between countries, which is not new, to a world of multinational
corporations bigger than many countries, operating outwith the jurisdiction of any one
nation, with the increasing foreign ownership of productive assets and internationally
integrated supply chains. Banking is one of the most globalised sectors. Since 2007 and the
financial crisis, indeed since 2001 and 9/11, we live in what has been described as a VUCA
world – one that is volatile, uncertain, complex and ambiguous. The VUCA acronym resulted
from the end of the Cold War and derives from military vocabulary. It has been
subsequently applied to the world of strategic management.

The pace of change is getting faster, so called ‘black swan’ events seem to occur more
frequently, disruptive technologies arise ever quicker and the internet gives access to vast
amounts of information and data overload – often contradictory, often not sufficient for
what we need. In this VUCA world strategy has to cope with a rapidly changing context and
moving targets or end goals.

It is with this in mind that we introduce the concept of the ‘strategy process’, and upon
which the first parts of the book are based. This is based on a simple conceptual framework
for strategy as a means to determine:

• Where are we now? Current state

• Where do we want to get to? Future goal
• How do we get there? Implementation and plan
• Where have we come from? Reflection on history, culture, morale

The strategy ‘process’ that answers these questions, introduced in Chapter 2, consists of the
basic tools and techniques of strategy, essential frameworks to be mastered. Note that
strategy is not the same as planning. Planning is part of the strategy process, an important
part, but comes after prior analysis and decision making as to the strategic objectives. How
to get there necessarily involves knowing where you are starting from.

The concepts and frameworks of the strategy process come with some disclaimers:

a) They do not give us the right answers, but they may help us ask the right questions.
b) They are necessary but no longer sufficient for good strategy formulation, as they
are analytical tools with a bias towards the past and the current, whilst we
increasingly need help to shape our thinking of the future
c) They should be compared with the techniques needed to control a car so as to be
able to pass a driving test – after which most of us really learn to drive with the
basics of vehicle control becoming second nature. Thus with the strategy process.

The tools, techniques, frameworks and concepts described in this book should eventually
become second nature. Competitive advantage and thus the added value of the strategy
function will come from seeing the future before your competitors – calling for vision and
creativity, values and sensitivity, flexibility and agility as well as process and analysis. In
other words, strategy has evolved from a focus on ‘hindsight’ then ‘insight’ to ‘foresight’.
The analytical tools of the strategy process can, however, help organisations to

• Improve the decision-making process

• Identify and understand key issues
• Manage complexity
• Maintain a balance between a) competing for the present b) preparing for the future
• Secure the best fit between our current resources and capabilities and the fast
changing external environment at any one time
• Identify risks arising from that fast changing environment

A VUCA world clearly implies more risk, and in governance terms risk must be identified,
quantified and analysed by the board and senior officers, including the company secretary.
One major risk is that any market or competitive advantage can now be quickly eroded, and
organisations must accept that Porter’s ideal of sustainable competitive advantage is no
longer feasible. The best we can hope for, according to Columbia Business School’s
Professor Rita Gunther McGrath writing in 2013, is ‘transient competitive advantage’. She
talks in terms of a ‘transient advantage economy’ and how this impacts upon resource
allocation, innovation, leadership and careers.

STOP AND THINK

When thinking about strategy think like a management consultant. Imagine you have been
assigned to your organisation as a new client and have to identify and analyse, with suitable
evidence, the key issues from both internal and external factors, challenging the views and
assumptions of the management team.

1.4 Strategy & management

Strategy and management are intimately linked. Managers implement and monitor
strategy, through and with the organisation’s employees. But what is management? One of
the greatest philosophers about management, the late Peter Drucker, wrote that
organisations do not exist for their own sake, but to fulfil a specific social purpose and to
satisfy a specific need of a society, a community or individuals. Management, in turn, is the
organ of the organisation.

Drucker saw strategy in terms of the decisions made today about a future that is inherently
uncertain. In his view management was more of an art than a science, based on a few
essential principles:

• Management is about human beings

• It deals with the integration of people in a common venture
• Every enterprise requires commitment to common goals and shared values so
management has to set and exemplify those objectives and values
• Management must also enable the enterprise and each of its members to grow as
needs and opportunities change – the importance of innovation

The task of management is therefore to

• Establish the specific purpose and mission of the organisation – the WHAT
• Make work productive and employees effective – traditionally the HOW
• Manage social impacts and responsibilities – a new component of HOW

Gary Hamel has coined the phrase ‘Management 2.0’ and talks about the need for a new
management paradigm in the 21st century, given that most of our classic management tools,
like the business schools that teach them, were invented in the early 1900s. Then the
challenge of management was to harness uneducated farm labourers in factory conditions
to undertake repetitive manual tasks, as industrialisation and mass production took hold.
The focus was on control.

Today management is still concerned with getting things done through other people, but
now employees are more educated and articulate with far more rights and aspirations,
values and creativity. Management today is less about control and more about trust and
empowerment, a theme picked up by another leading management thinker, Charles Handy,
who also writes about ‘new management’. Trust is cheaper, but control is safer – or so we
think, certainly in large organisations. But the rapid pace of change in the external
environment means that traditional top down command and control hierarchies will
become like super tankers, slow to change direction. To use another metaphor coined by
Harvard’s Rosabeth Moss Kanter, how can elephants learn to dance?

The nature of management has changed as has the nature of strategy. Boards must not only
concern themselves with WHAT to do but also HOW to do it. The ‘how’ is growing in
importance and has two dimensions:

i) How best to organise and structure an organisation to implement its strategy is a

constant challenge – but now in a fast changing world
ii) How in terms of the style, values and ethics of the organisation, and its
alignment with the style, values and ethics of employees in a way that not only
 harnesses their obedience and diligence, but also their intellect, initiative,
creativity and passion. This is reflected in Hamel’s Pyramid of Human Capabilities
shown in Figure B

Fig B Source: Gary Hamel

Strategy was never easy. It gets harder all the time. As you read through this book and
immerse yourself in the detail of strategy and the strategy process, try to keep in mind the
rapidly changing external environment and the demands of society that business serves and
the employees drawn from that society, in a way that addresses the essential challenge of
business strategy – getting the right things done through other people in the right way.

Organisations that get this right will be successful. If the reader keeps abreast of the
somewhat ‘philosophical’ issues surrounding strategy and management, as well as the
technical developments in strategic thinking and its tools and concepts, you will be well
placed to serve your organisation and help guide it to success.

TEST YOUR KNOWLEDGE

a) What are the key elements of strategy in the modern business environment?
b) How are management and strategy linked?

Summary
• The word strategy comes from ancient Greek with military connotations
• Definitions of strategy involve long term goals and how to achieve them, and imply a
hunt for competitive advantage, transient though it is likely to be.
• Strategy sets direction, focuses effort and provides consistency
• It must be clearly distinguished from tactics which are short term operational
matters to help achieve the goals of strategy
• Strategy has evolved from a focus on planning, through positioning to reaction and
innovation – from hindsight via insight to foresight and emergent strategies
• Strategy is dynamic, necessary as organisations operate in a fast changing and VUCA
world – volatile, uncertain, complex and ambiguous
• A VUCA world involves more risk, which cannot be eliminated but must be managed
• A good strategist thinks like a management consultant, challenging and testing
assumptions about the organisation as the eternal environment changes
• Strategy is intimately linked to management, which itself is rapidly evolving with a
greater emphasis not only on WHAT organisations do but HOW they do it, in a way
that addresses society’s expectation of business and harnesses the values, creativity
and even passion of employees