Strategic Thinking

Basic Elements of Strategy and Strategic Management

One cornerstone of a manager’s conceptual skills is her or his ability to think strategically. In order to think strategically, in turn, managers need to understand the basic elements of strategy and strategic management.

  • A strategy is a comprehensive plan for accomplishing an organization’s goals.
  • Strategic management, by extension, is a way of approaching business opportunities and challenges — it is a comprehensive and ongoing management process aimed at formulating and implementing effective strategies.
  • Finally, effective strategies are those that promote a superior alignment between the organization and its environment and the achievement of strategic goals.

Strategic leadership, also closely related to strategic thinking, is a relatively new concept that explicitly relates leadership to the role of top management.

Strategic leadership is defined as the capability to understand the complexities of both the organizationOpens in new window and its environmentOpens in new window and to lead change in the organization in order to achieve and maintain a superior alignment between the organization and its environment.

To be an effective strategic leader and thinker, a manager must have a thorough and complete understanding of the organization — its history, its cultureOpens in new window, its strengths, and its weaknesses. In addition, the leader needs a firm grasp of the organization’s environmentOpens in new window.

This understanding must encompass current conditions and circumstances as well as significant trends and issues on the horizon.

The strategic leader and thinker also needs to recognize how the firm is currently aligned with its environment — where it relates effectively and where it relates less effectively with that environment.

Finally, looking at environmental trends and issues, the strategic leader and thinker works to improve both the current and future alignment the organization and its environment.

Jeffrey ImmeltOpens in new window (CEO of General ElectricOpens in new window), Hector RuizOpens in new window (CEO of Advanced Micro DevicesOpens in new window), Michael DellOpens in new window (founder and CEO of Dell ComputersOpens in new window), Anne MulcahyOpens in new window (former CEO of XeroxOpens in new window) and A. G. LafleyOpens in new window (former CEO of Procter & GambleOpens in new window) all have been recognized as strong strategic leaders.

Reflecting on his dramatic turnaround at Procter & Gamble, for instance, Lafley commented, “I have made a lot of symbolic, very physical changes so people understand we are in the business of leading change.”

The Components of a Strategy

In general, a well-conceived strategy addresses three areas:

  1. distinctive competence,
  2. scope, and
  3. resource deployment.
  1.    Distinctive Competence

A distinctive competence is something the organization does exceptionally well.

A distinctive competence of Abercrombie & FitchOpens in new window is speed in moving inventory. It tracks consumer preferences daily with point-of-sale computers, electronically transmits orders to suppliers in Hong Kong, charters 747s to fly products to the United States, and has products in stores 48 hours later.

Because other retailers take weeks or sometimes months to accomplish the same things, Abercrombie & Fitch uses this distinctive competence to remain competitive.

  1.    Scope of a Strategy

The scope of a strategy specifies the range of markets in which an organization will compete. The Hershey CompanyOpens in new window has essentially restricted its scope to the confectionary business, with a few related activities in other food-processing areas.

In contrast, its biggest competitor, MarsOpens in new window, has adopted a broader scope by competing in the pet food business and the electronics industry, among others. Some organizations, called conglomerates, compete in dozens or even hundreds of markets. Strategic thinking as a part of effective conceptual skills enables a manager to make the best decisions regarding scope.

  1.    Resource Deployment

A strategy also should include an outline of the organization’s projected resource deployment — how it will distribute its resources across the areas in which it competes. General ElectricOpens in new window, for example, uses profits from its US operations to invest in new businesses in Europe and Asia.

Alternatively, the firm might have chosen to invest in different industries in its domestic market or to invest more heavily in Latin America. The choices it makes as to where and how much to invest reflects issues of resource deployment. And again, conceptual skills help enable a manager to make the best decisions about resource deployment.

Types of Strategic Alternatives

Most businesses today develop strategies at two distinct levels. These levels provide a rich combination of strategic alternatives for organizations. The two general levels are business-level strategies and corporate-level strategies.

  1.    Business-Level Strategy

Business-level strategy is the set of strategic alternatives from which an organization chooses as it conducts business in a particular industry or market.

Such alternatives help the organization focus its competitive efforts for each industry or market in a targeted and focused manner.

  1.    Corporate-Level Strategy

Corporate-level strategy is the set of strategic alternatives from which an organization chooses as it manages its operations simultaneously across several markets.

Most large companies today compete in a variety of industries and markets. Thus, although they develop business-level strategies for each industry or market, they also develop an overall strategy that helps define the mix of industries and markets that are of interest to the firm.

Strategy Formulation and Implementation

Drawing a distinction between strategy formulation and strategy implementation is also instructive.

  • Strategy formulation refers to the set of processes involved in creating or determining the strategies of the organization, whereas
  • Strategy implementation refers to the methods by which strategies are operationalized or executed within the organization.

The primary distinction is along the lines of content versus process:

The formulation stage determines what the strategy is, and the implementation stage focuses on how the strategy is achieved.

Sometimes the processes of formulating and implementing strategies are rational, systematic, and planned. This is often referred to as a deliberate strategy — a plan chosen and implemented to support specific goals.

Texas Instruments (TI)Opens in new window excels at formulating and implementing deliberate strategies. TIOpens in new window uses a planning process that assigns most senior managers two distinct responsibilities: an operational, short-term responsibility and a strategic, long-term responsibility.

Thus one manager may be responsible for both increasing the efficiency of semiconductor operations over the next year (operatonal, short term) and investigating new materials for semiconductor manufacturing in the twenty-first century (strategic, long term).

TI’s objective is to help managers make short-term operational decisions while keeping in mind long-term goals and objectives.

Other times, however, organizations use an emergent strategy — a pattern of action that develops over time in an organization in the absence of mission and goals or despite mission and goals.

Implementing emergent strategies involves allocating resources even though an organization has not explicitly chosen its strategies.

3MOpens in new window has at times benefited from emergent strategies. The invention of invisible tape, for instance, provides a good example. Entrepreneurial engineers working independently took the invention to their boss, who concluded that it did not have major market potential because it was not part of an approved research and development plan.

Only when the product was evaluated at the highest levels in the organization was it accepted and made part of 3M’s product mix. Of course, 3M’s Scotch tape became a major success despite the fact that it arose outside of the firm’s established practices. 3M now counts on emergent strategies to help expand its numerous businesses.

    Research data for this work have been adapted from the manual:
  1. Management Skills: Assessment and Development By Ricky Griffin, David Van Fleet.