Ch -02

The concept of Strategy

Strategic Human Resourcee Management

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Concept of Strategy
Strategy was originally a military term, defined in the Oxford English Dictionary as:

The

art of a commander-in-chief; the art of projecting and directing the larger military movements and operations of a campaign.

strategy is the ultimate responsibility of the head of the organization, is an art and is concerned with projecting and directing large movements.
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Peter Drucker

It was Peter Drucker who long ago (1955) pointed out in The Practice of Management the importance of strategic decisions, which he defined as

all decisions on business objectives and on the means to reach them.

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three outstanding pioneers

three outstanding pioneers, made their mark

Kenneth Andrews (1987), Igor Ansoff (1987) and Alfred Chandler (1962)

They were followed by Michael Porter (1985), Henry Mintzberg (1987), Hamel and Prahalad (1989) and many more who further developed the concepts and adapted them to contemporary conditions.
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Purpose of the Chapter-02

One of the purposes of the chapter is to counter the belief that business strategy is a highly rational affair that provides a firm basis for HR strategy. Business strategy is in fact a far more intuitive, evolutionary and reactive process than most people believe. This is the reality of strategic HRM that must be borne in mind when dealing with this compelling but often elusive concept.

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Defining the strategy

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Strategy defined

A long term plan of an organization, for how it will balance its internal strengths and weaknesses with external opportunities and threats to maintain its competitive advantage. (Fred R. David)

Strategy has two fundamental meanings. First, it is forward looking., A good strategy is one that enables organizations to adapt by mastering the present and pre-empting the future.(Abell 1993) Second, Strategic Fit; A critical aspect of top managements work today involves matching organizational competences (internal resources and skills) with the opportunities and risks created by environmental change in ways that will be both effective and efficient over the time such resources will be deployed. (Hofer and Schendel 1986),
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Strategy defined
Strategy has been defined in other ways by the many writers on this subject. For example:

Strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. (Chandler, 1962) Strategy is a set of fundamental or critical choices about the ends and means of a business. (Child, 1972) [Strategy involves] the constant search for ways in which the firms unique resources can be redeployed in changing circumstances. (Rumelt, 1984)

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Strategy defined cont.

Strategy should be understood as a framework of critical ends and means. (Boxall, 1996) Business strategy is concerned with the match between the internal capabilities of the company and its external environment. (Kay, 1999) The emphasis (in strategy) is on focused actions that differentiate the firm from its competitors. (Purcell, 1999) Strategy, then, is a set of strategic choices, some of which may be formally planned. It is inevitable that much, if not most, of a firms strategy emerges in a stream of action over time. (Boxall and Purcell, 2003)

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The concept of strategy

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The concept of strategy

strategic goals
strategic management

strategic capability
resourcebased strategy

distinctive capabilities

strategic plan

competitive advantage,

strategy

Strategic Intent

The concept of strategy is based on a number of associated concepts:

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i. Competitive Advantage (C.A.)

Concept of CA formulated by Michael Porter (1985).

CA arises out of a firm creating value for its customers.

To achieve it, firms select markets in which they can excel and present a moving target to their competitors by continually improving their position.
Differentiation: offering a product or service that is perceived industry-wise as being unique, Focus: seeing a particular buyer group or product market more effectively or efficiently than competitors who compete more broadly.

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i. Competitive Advantage (C.A.) Cont.

Framework of three generic strategies, innovation, quality, and cost leadership, that organizations can use to gain competitive
advantage.

A distinction has been made by Barney (1991) between

the competitive advantage that a firm presently enjoys but others will be able to copy, and

sustained competitive advantage, which competitors cannot imitate. This leads to the concept of distinctive capabilities.

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Distinctive capabilities

A distinctive capability (DC, or Competence)is The opportunity for companies to sustain competitive advantage is determined by their capabilities. Kay (1999), it confers superiority on the organization (Quinn 1980)

distinctive capabilities and reproducible capabilities:

Distinctive capabilities are those characteristics that cannot be replicated by competitors or can only be imitated with great difficulty. Reproducible capabilities are those that can be bought or created by any company with reasonable management skills, diligence and financial resources. Most technical capabilities are reproducible. (Kay 1999).

Prahalad and Hamel (1990) argue that competitive advantage stems in the long term when a firm builds core competences that are superior to those of its rivals and when it learns faster and applies its learning more effectively than its competitors.

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Strategic intent
The strategic intent sequence has been defined by Miller and Dess (1996) as:

>> a broad vision of what the organization should be;

>> the organizations mission; >> specific goals, which are operationalized as: >> strategic objectives
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Strategic capability
the ability of an organization to develop and implement strategies that will achieve sustained competitive advantage.

It is therefore about the capacity to select the most appropriate vision, to define realistic intentions, to match resources to opportunities and to prepare and implement strategic plans The strategic capability of an organization depends on the strategic capabilities of its managers, they must be successful now to succeed in the future
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The resource-based view

the strategic capability of a firm depends on its resource capability.

Penrose (1959), wrote that the firm is an administrative organization and a collection of productive resources.

Wernerfelt (1984), explained that strategy is a balance between the exploitation of existing resources and the development of new ones.
Barney (1991) argue that sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate.

Competitive success does not come simply from making choices in the present; it stems from building up distinctive capabilities over significant periods of time. (Boxall 1996)
dynamic capabilities: The capacity of a firm to renew, augment and adapt its core competences over time. (Teece, Pisano and Shuen 1997)

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Strategic management

'the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization. 'Pearce and Robinson (1988) Art and science of formulating, implementing, and evaluating crossfunctional decisions that enable an organization to achieve its objectives. (Fred R David)

Boxall and Purcell (2003) believe that strategic management is a mixed, impure, interactive process, fraught with difficulties, both intellectually and politically.

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Strategic management
Strategic management has been described by Burns (1992) as being primarily concerned with:

the full scope of an organizations activities, including corporate objectives and organizational boundaries; matching the activities of an organization to the environment in which it operates; ensuring that the internal structures, practices and procedures enable the organization to achieve its objectives; matching the activities of an organization to its resource capability, assessing the extent to which sufficient resources can be provided to take advantage of opportunities or to avoid threats in the organizations environment; acquiring, divesting and reallocating resources; translating the complex and dynamic set of external and internal variables that an organization faces into a structured set of clear future objectives that can then be implemented on a day-to-day basis.

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Strategic management
The process of strategic management is modelled in the Figure

It involves defining the organizations mission, analyzing the internal and external environment, exercising strategic choice (there is always choice), formulating corporate and functional strategies and goals, implementing strategies and monitoring and evaluating progress in achieving goals. But in practice it is not as simple and linear as that.

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Strategic goals

Strategic goals define where the organization wants to be. They may be specified in terms of actions, quantified in terms of growth, or expressed in general terms as aspirations rather than specifics.

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Strategic plans
Strategic plans are formal expressions of how an organization intends to attain its strategic goals. Boxall and Purcell (2003) make the point that We should not make the mistake of equating the strategies of a firm with formal strategic plans It is better if we understand the strategies of firms as sets of strategic choices, some of which may stem from planning exercises and set piece debates in senior management, and some of which emerge in a stream of action.
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Strategy Formulation

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The formulation of strategy: Approaches to strategy formulation

Whittington (1993) has identified four approaches to the formulation of strategy: 1. Classical strategy formulation as a rational process of deliberate calculation. The process of strategy formulation is seen as being separate from the process of implementation. 2. Evolutionary strategy formulation as an evolutionary process that is a product of market forces in which the most efficient and productive organizations win through. 3. Processual strategy formulation as an incremental process that evolves through discussion and disagreement. It may be impossible to specify what the strategy is until after the event. 4. Systemic strategy is shaped by the social system in which it is embedded. Choices are constrained by the cultural and institutional interests of a broader society rather than the limitations of those attempting to formulate corporate strategy.

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Approaches to strategy formulation Cont..

1. Classical

strategy formulation as a rational process of deliberate calculation. The process of strategy formulation is seen as being separate from the process of implementation.

2. Evolutionary 3. Processual 4. Systemic

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strategy formulation as an evolutionary process that is a product of market forces in which the most efficient and productive organizations win through.

strategy formulation as an incremental process that evolves through discussion and disagreement. It may be impossible to specify what the strategy is until after the event.

strategy is shaped by the social system in which it is embedded. Choices are constrained by the cultural and institutional interests of a broader society rather than the limitations of those attempting to formulate corporate strategy.

The classical approach to formulating strategy

Conceptually, the classical approach as described by Whittington involves the following 10 steps (implementation and monitoring steps have been added to the Whittington model):

1. Define the mission.

2. Set objectives.
3. Conduct SWOT analysis. 4. Conduct gap analysis (*) 5. Define in the light of this analysis the distinctive capabilities of the organization.

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The classical approach to formulating strategy

6. Define the key strategic issues emerging from the previous analysis.

7. Determine corporate and functional strategies for achieving goals and competitive advantage, taking into account the key strategic issues.(**)
8. Prepare integrated strategic plans for implementing strategies. 9. Implement the strategies. 10. Monitor implementation and revise existing strategies or develop new

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The reality of strategy formulation

strategy is everything not well defined or understood (Bower, 1982) . This may be going too far but, in reality, strategy formulation can best be described as problem solving in unstructured situations (Digman, 1990), and strategies will always be formed under conditions of partial ignorance. The difficulty is that strategies are often based on the questionable assumption that the future will resemble the past. Some years ago, Robert Heller (1972) had a go at the cult of long-range planning: What goes wrong, He wrote, is that sensible anticipation gets converted into foolish numbers: and their validity always hinges on large loose assumptions.

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The reality of strategic management

Tyson (1997) points out that, realistically, strategy:

has always been emergent and flexible it is always about to be and it never exists at the present time; is not only realized by formal statements but also comes about by actions and reactions; is a description of a future-orientated action that is always directed towards change; is conditioned by the management process itself.

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The reality of strategic management

The reality of strategic management is that managers attempt to behave strategically in conditions of uncertainty, change and turbulence, even chaos. The phenomenon of bounded rationality as described by Miller et al (1999) applies while people by their own lights are reasoned in their own behaviour, the reasoning behind their behaviour is influenced by human frailties and demands from both within and outside the organization.

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