Strategic Advantage - the Concept of Strategy

Module outline

Lesson 1: The Concept of Strategy

This lesson points out the contested terrain of strategy, in particular its various definitions and descriptions, providing examples and techniques for assessing strategy. Beginning with planning, we outline the basics of the planning process and show the basic analytical tools which can help underpin future plans and trajectories. Taking the perspective that a large proportion of strategy researchers have viewed it largely as a question of alignment (or fit) of the organisation with its environment, the lesson covers the various positioning tools and perspectives which can help determine future actions (strategies). Knowing where the organisation is positioned in relation to its operating environment allows strategists to plan either for achieving a better (more competitive) position or to try and make it more difficult for others to enter the market and compete. The lesson concludes its analysis of planning by looking at the public face of strategic planning for many organisations. This public face is captured in the notions of goals and mission. A few examples of mission statements show how such goal-orientated statements can be the overall guide of strategic decisions taken in the organisation. Such guiding can take the form of a statement about future economic positioning (we want to be number one in the industry) or can take the form of expressed values (we want to be seen as environmentally friendly and socially responsible).

As we progress through the module you will see that we aim to provide a definition of strategy from an examination of the nature of strategic decisions. We analyse the meaning of strategy by breaking it down into its component parts, namely:

* its external logic - how the firm positions itself relative to its external context

* its internal logic - the levels of the organisation at which strategy has different meanings and what distinctive resources and competences it must acquire

* its performance over time - distinguishing between achievement of long-term objectives, meeting milestones along the way, and preserving short-term stability

* its managerial requirements - the role of general managers and how strategy is planned and managed.

In Lesson 1 we suggest ways of applying practical strategic tools of analysis in the form of simple strategic tools, focusing initially on understanding 'what is a strategic problem'. These are essentially complex and the rest of the lesson indicates ways of dealing analytically with complexity. A number of practical methods are introduced regarding mind mapping, impact wheels, why diagrams and influence diagrams. Strategic management as a subject does not regard these techniques as being an essential part of its theoretical apparatus but for practitioners these methods, which are more often seen in 'soft' operations research modules, are very useful.

Lesson 2: Macro and Micro Environment Analysis: PESTLE and SWOT

These two simple frameworks are very widely used as the first steps in systematic strategy review and formulation processes. They have reached such a peak of general acceptability that Wikipedia contains extensive explanation and referencing of the two ideas. In this lesson we aim to supplement the more formal economic analysis (e.g. in your Economics of the Business Environment module) under the general heading of macroeconomic and microeconomic analysis. The PESTLE and SWOT tools are economical, shorthand ways of assessing the external and internal environment of companies (and not-for-profit organisations as well).

Lesson 3: Industry Analysis and Competitive Strategy

Equipped with a microeconomic toolkit and a sense of how to analyse the economic environment, Chapter 3 of the textbook introduces the key notion of competitive advantage. This is the foundation stone for any strategy analysis. It is a powerful intellectual construct that is used universally. The idea of competitive advantage is gained through the denial of perfect competition, the economist's competitive ideal. Whereas perfect competition leaves no room for individual firms and their strategies, the whole idea of strategy is built on the presence of imperfections in markets. This starting point for strategy is explained in this lesson and further explored in other basic concepts, industry analysis (often referred to as Porter's Five Forces Analysis), the generic competitive strategies, and the value chain.

Moving from these foundations for strategy analysis, the rest of the lesson introduces a more practical flavour. If we understand the idea of competitive advantage as a key attribute that is specific to the firm, then we have the beginnings of a description of strategy. We look at a template for describing and identifying a strategy - how would you recognise a strategy if you saw one? Whereas competitive advantage is an external positioning concept, strategy also needs to say something about the internal disposition of resources and assets. The internal logic of strategy is shown in the Strategy Cycle and cost analysis is reflected in the Value Chain. The latter is extremely well known being another product of Porter's analysis (1985). The Strategy Cycle illustrates the significance of the balance between internal resources, external market positioning and financial performance. The value chain builds directly on cost analysis and enables us to identify a picture of the internal asset structure and activity structure of the firm.

Of core concern to this lesson is the nature of strategic positioning. We call this the market-based view and others have called it the activity-based view. Strategic positioning is about what activities have to be pursued in chosen markets so as to gain competitive advantage. Positioning is about the deployment of cost and differentiation-based advantages. It is about the identification of distinctive cost strategies and distinctive differentiation strategies. In practice we see the need for detailed analysis of markets and industries, firstly to see what the 'rules' are and how to play them, but second (hopefully) to see how we might innovate with our strategies so as to break the rules and get ahead. In industry terms, this means understanding how we can be better than our competitors. In market terms, it means understanding what the customer wants. Strategy is about value creation and value analysis is an important element of this chapter.

This section of the module provides the economic rationale for strategy, a toolkit for analysing strategy, a language for conducting the strategy discourse, and a set of strategy tools. The