Chapter 2: The Strategy Piece

All managers must start with the same four pieces: strategy, information technology, structure, and leadership.

Organizations differ not according to the number of pieces they choose to use in completing their specific puzzle, but as a result of the different shapes of the pieces they choose.

Solving the management puzzle, consists of:◦ Examining the available pieces and selecting those which will both interlock

effectively◦ Presenting a harmonious and well-composed picture to the outside world,◦ Fill the specific frame with which their environment presents them.

Traditional business design always start with strategy. Next came a structure to support the strategy and, finally, new management and IT systems to make the structure work.

Today, designing a business requires non-linear thinking that can start with any one of the four pieces and then proceed in a dynamic, interactive, and continually evolving fashion.

A competitive strategy is an approach to doing business. At its highest level, a strategy specifies an organization’s mission, vision, and goals.

Approaches to strategy formulation and implementation are: ◦ strategy as positioning – outward looking - ability to

assess one’s environment and in exploiting it in the best possible way, sometimes by transforming it

◦ strategy as capabilities – inward looking - assessing one’s environment followed by building one’s capabilities in order to stay ahead of the competition.

◦ governance issues- what should the boundaries of the firm be etc. - how transactions are allocated among various institutional arrangements and firms.

Harvard tradition of strategy formulation - “SWOT” model

Porter 5 Forces Analysis

Positioning might be too simple to be solution to the strategy formulation process.

Capabilities need to be develop and focus on the core business of the enterprise

Firm as a bundle of assets and the strategic advantage as the capacity to deploy those assets.

The core competencies are defined as the competencies that are unique to the organization, hard to replicate, and central to the organization’s mission.

The more difficult it is for competitors to imitate and copy one’s strategy, to replicate one’s competencies, the more sustainable is one’s competitive advantage.

History, the combination of past decisions and luck/serendipity, plays a major role in defining a firm’s profile.

Organizational learning refers to that knowhow which results from the interactions of the individual within the firm, and which is often tacit in nature.

Ability of organization to adapt effectively to current environmental conditions, enable a company to create a stream of short-term advantages in such areas of new products, new market segments, new marketing channels, and new customer relationships.

The careful positioning of the past must be replaced by a more dynamic and disorganized approach which emphasizes continuous strategy making over time throughout the entire organization.

The roots of this new perspective on strategy can be found in firms’ improved information processing capabilities.

Organizations are set up to minimize the costs of executing certain forms of transactions.

to be successful, a firm must deliver better value at a lower price than the marketplace.

To do this, companies will have to focus on what they do well, develop core competencies in these areas, and form partnerships and alliances to deliver the rest.

With Internet, the costs of using the market have been dramatically reduced. This creates opportunities for firms and entrepreneurs who will dismember and rearrange transactions in the most economical way.

Strategizing also consists in reshaping organizations, seeking new ways, processes, and organizational structures to deliver better business propositions to ever demanding consumers.

The rapid developments in IT are reshaping markets and challenging existing governance structures.

Most researchers suggest that IT strategy should result from business strategy, there is a growing body of evidence and thought that this is not always the case.

With the ability of IT to create and enhance new organizational capabilities and to create new products and services which can lead to a repositioning of a firm in one or more marketplaces, IT has become more than a passive technology.

Therefore, strategy as governance implies rethinking the organizations’ traditional boundaries and interfaces. It is strategy in the long run: an effort to provide definitions of “who we are” and “what we do”

The three perspectives on strategy– stress the need to maximize the coherence between a company’s external strategy and its internal execution.

Companies, must design an internal business strategy, which complements external strategy, and forms a focused and integrated system.

The new environment poses enormous challenges to managers in managing the process of strategy formulation and implementation.