BUSINESS STRATEGY - A Literature Review

Introduction
The concept of strategy in business has only been around since the mid 1900s, however, strategy has been used for centuries as a methodology for fighting battles. Work such as un T!us "The Art of War which is seen as the foundation of strategy is an ancient #hinese military strategy book. ince its emergence in business, academics and businessmen alike have been debating the true meaning of strategy and what it entails. The interesting thing about strategy and probably the reason it receives so much academic attention is that it doesnt have a clear cut definition or techni$ue to implement it, at least not one that can be agreed upon. The new profession and research area of strategic management is broadly seen as a method for "chartering how to achieve a companys objectives, and adjusting the direction and methods to take advantage of changing circumstances %&aulkner ' #ampbell, (00)*+,.

This paper aims, through the study of established literature, to analyse the true meaning of business strategy and how it has developed over the past decades. &irst off, it will give an e-tensive overview of the history of business strategy and its key authors. &rom this, it will look at the schools of thought in strategy highlighted by .int!berg, /hlstrand and 0ampel in 1991. Then it will show the new age of strategy innovation through some of its relevant authors and a brief look at the divide between management and literature of strategy, before concluding with the potential for developments in strategy formulation and implementation.

Literature History of Business Strategy

2rior to 19)0 business strategy didnt e-ist as a concept and business management was based on the short term financial control of companies. 3owever a move towards business planning 1

and goal setting was made by the head of 4eneral .otors, /lfred loan and the works of 2eter 5rucker in analysing the success of big companies. 5ruckers 196) book, " Concepts of the Corporation started the move towards business planning and target setting. /lthough, it wasnt until the 19)0s that strategy first came to light as an academic business concept through the work of /lfred #handler %19)(,. 7n a paper entitled, " Strategy and Structure, he highlighted the effects of a pre8planned long term strategy before a business attempts to position itself within a market, he used successful e-amples of companies who had done this such as loans success with 4eneral .otors. This article also highlights three business strategies for the first time9 vertical integration, hori!ontal integration and diversification %3orwath, (00)*(,.

7n 19):, 7gor /nsoff published the first real academic work on strategic planning with the title, "Corporate Strategy. 7n it he argues that there are two main ideas that are essential in order to understand and implement strategy. The first is measuring the gap between a companys current position and its strategic ob;ective and the second is the idea of synergy, that combining resources can lead to higher outcomes or as he described it, (<(=:. While /nsoff himself has noted many flaws in the approach to strategic planning within this book it is still regarded as the forerunner to corporate planning and one of the foundations of business strategy thinking.

The 2rofit 7mpact of .arketing trategy %27. , database was set up in the 19)0s to look at the effects of business strategy decision in regards to profit returns of the company. #ompanies within it provide information on many different aspects of their business operations and the data is then analysed by researchers. .any of the key studies on strategy have been based on the 27. dataset, including early work of >u!!ell, 4ale, and ultan %19?:, and choeffier %19??,. /dditional authors investigated the restraints of the 27. database, acknowledging its importance in stimulating research but claimed that research has been based narrowly on the data of 27. and calls are made for non 27. related research. %@amanu;am ' Aenkatraman, 1916,.

>y the 19?0s, strategy was based around large scale corporate diversification, companies focused on portfolio management in order to reduce risk and increase sustainability. >ruce 3enderson of the >oston #onsultancy 4roup %>#4, developed the 4rowth8 hare .atriwithin a perspective entitled, "The Product Portfo io %3enderson, 19?0,. The matridisplayed four types of products within a companys portfolio and how they should approach each one. "!uestion marks were products that had high growth but low market share, they should decide which products are important and invest heavily in them to turn them in to "Stars. The "Stars are products with high market share in a fast growing industry, companies should maintain their interest in these as they can become " Cash Cows over time. "Cash Cows were products in a slow growth market that the company had a high market share in, these are the most profitable. &inally the fourth type is " "ogs, these are low market share low growth products and they are seen as failures within the company and need to be li$uidated to ensure minimal loss. Bleven years later @ichard 0ockridge created the >#4s /dvantage .atri- which showed four approaches to achieve advantage based on si!e of advantage %economies of scale, and number of products %differentiation,9 " #ragmented, "Specia isation, "Sta emate and "$o ume %0ockridge, 1911,.

Cenneth /ndrews, now with the sub;ect in the spotlight amongst academics, wrote the " The Concept of Corporate Strategy %19?1,. 7n this he lays out the measures for evaluating a companys strategy9 identifying strengths, matching opportunity and competence and uni$ueness of strategy. 3e also gives a definition of strategy which has become a driver of modern day strategy research9 "the pattern of objectives, purposes, or goa s and the major po icies and p ans for achieving these goa s, stated in such a way as to define what business the company is in and the kind of company it is or is to be %/ndrews, 19?1,.

4eorge teiner, focused on the idea of strategic planning, attempted to make a link between the practicality of management and the implementation of plans. 3is %19?9, book e-pressed the need for planning to be entwined within the management of the company instead of a separate planning system. The 1910s was a move towards more core business focused strategy as opposed to the portfolio development strategies of the 19?0s. 2eter and Waterman %191(, emphasised the importance of core business at the time by saying, " stick to the knitting. The e-perience curve, which was made popular by the >#4 showed the importance +

of gaining a market share and this was furthered by a study using the 27. database which showed a strong correlation between market share and returns % choeffier et al, 19?6,. 27. also noted a correlation between $uality and returns, sparking a reign of $uality management techni$ues helped on by 2hilip #rosbys logic, "%ua ity is free %#rosby, 19?9,.

7n the early 1910s arguably the most iconic author on strategy, .ichael 2orter, developed his paper around the principle that strategy is based on e-ternal market conditions. 7n his work, "Competitive Strategy he introduced two core models of business strategy, the generic three strategies and the five forces of competition %2orter, 1910,. 2orter argued that there are three strategies a company can take to gain a competitive advantage against its competitors, it can use a cost advantage, differentiation advantage or a focus %or niche, advantage. 3is second concept is that a firms competitiveness is based on five forces of the market9 competitors, suppliers, buyers, potential entrants and substitutes. This was an answer to /lbert 3umphreys then popular WDT analysis, which 2orter claimed to be too ad hoc. 7n 2orters ne-t book, "Competitive Advantage he furthers his work on competitive advantage by introducing the firms Aalue #hain %2orter, 191:,. The Aalue #hain is a chain of activities that a company needs in order to get a product or service to the consumer. This is a follow on to his generic strategies model, claiming that if companies can analyse which part of the chain provides the most value then a company can gain a competitive advantage. 2orter developed his opinion further to incorporate a more global business world with a new book, "Competitive Strategy of &ations %1990, where he develops his diamond model for national advantage.

While 2orters work has been praised by many and is widely seen as one of the key authors on strategy and competitive advantage some have argued against his model. >irger Wernerfelts %1916, and Eay >arners %191) ' 1991, papers were the start of the contrasting @esource >ased Aiew on strategy9 that strategy is determined by a companys resources as opposed to the e-ternal market. &urthering this perspective was 4rants %1991, paper on "'esource (ased Theory of Competitive Advantage where he concludes that "understanding the re ationship between resources, capabi ities, competitive advantage and profitabi ity is the key to the resource based approach %4rant, 1991*1++,.

The 1910s saw a call for strategy to be more adaptable and fle-ible due to large scale innovation, changing markets and globalisation. This brought forward the need for new management styles that possess "unintended order %.int!berg ' Waters, 191:, and "contro ed chaos %Fuinn, 191:,. 3enry .int!berg went on to look at how strategy is crafted9 that strategy can be a deliberate act, however, it can also emerge from unrealised strategies %.int!berg, 191?,. .int!bergs approach to strategy is to resolve the issue of how it really works relative to the theories and models designed by planners and academics. 7n his paper "The @ise and &all of trategic 2lanning %1996, he emphasises the role of day to day managers as far more important than planners in the actual implementation and vision of strategy. .int!berg goes on to highlight five 2s of strategy that e-plain the ways in which strategy is used9 plan, ploy, pattern, position and perspective.

4oing back to the @esource >ased /pproach, 3amel and 2rahaland %1996, introduced the idea of core competencies in their book " Competing for the #uture. They describe core competencies as the abilities the business has gained from the use of technologies and skills that can provide the company with an advantage over its rivals. Thus, competencies are a source of competitive advantage for the firm.

The new balanced scorecard model, made popular by @obert Caplan and 5avid Gorton %(000, in their book, "The Strategy #ocused )rgani*ation, which revolutionised how strategy was implemented9 the balanced scorecard aimed to align day to day business with the long term company strategy. 7t did this by transforming the balanced scorecard from a performance measurement to a strategy driving measurement. This publication focused on five ways to implement strategy performance9 using the balanced scorecard to communicate strategy, aligning the organisation to strategy, strategy as an everyday ;ob, a continual process and change through e-ecutive leadership.

The 1990s was awash with academic papers on strategy but many of the core writings that came out of this time were based on the argument of the @esource >ased /pproach versus tructural #onduct 2erformance %3orwath, (00),. 2orter %199), wrote an article entitled, "What is Strategy+, where he argued contrary to the resource approach, operational :

effectiveness is not strategy. trategy, he says is " choosing to perform activities different y than riva s do, arguing the importance of a firms strategic positioning within a market. Whereas on the other hand, /mit and choemaker %199+, e-pand on the concept of the resource based approach by introducing the importance of firms capabilities to competitive advantage. The paper attempts to bind the importance of strategic industry factors and strategic assets at the firm level. The concept of capabilities as well as resources being the drivers of competitive advantage has since been adapted by many other theorists in their work.

Schools of Strategy
/s we have seen, there is a vast amount of ideas, theories, models and concepts on strategy out there but none seem to fulfil all aspects of the strategy process. 7n .int!berg, /hlstrand and 0ampels %1991, book, "Strategy Safari, they highlight ten schools of strategy, three prescriptive schools9 design, planning and positioning, and seven descriptive schools9 entrepreneurial, cognitive, learning, power, culture, environmental and configuration. Cey authors in these categories include 2orter as part of the positioning school, 3amel and 2rahalad as part of the learning school and .int!berg as part of the configuration school. .int!berg goes on to e-plain that these schools are both part of fundamentally different strategies of thinking and different parts of the same process. .oving from his previous perception of strategy, .int!berg moves to say that practical strategy is not a single one of these schools but should be an incorporation of all of them. .int!berg is a believer of actual strategy based on managers e-periences as opposed to the academic plans for strategy.

New age Strategy techniques

.ore recent takes on strategy have included rationales outside the norms of previous theories of thinking. These strategies argue that new age market environments have outgrown the strategies of the last few decades and their concepts are not relevant in modern business. The importance of strategic innovation and simplification has led to some interesting looks at strategic management. Galebuff and >randenburger %199), have developed a strategy that revolves around a new way of using game theory. 7n their book, " Co,opetition they show how companies can use game theory to compete as well as cooperate in order to gain )

strategic advantage. 4ary 3amel %(000, has set out new ways for firms to shake the foundations of innovation with his old brick, new brick model. 7n his book " -eading the 'evo ution he outlines how new8age industry " activists can change the way companies think about strategy by trying new and different things.

>lue Dcean

trategy is another theory devised by Cim and .auborgne %(00:, that says

instead of creating a competitive advantage in populated "red ocean markets, companies should create new "blue oceans that are uncontested and companies can therefore reap higher rewards than in highly competitive markets. This strategy puts high emphasis on the need for strategic innovation in strategy formulation today. They go one step further in developing this strategy by showing how strategy over the last +0 years has been based on the assumption that structure of industries shape strategy and e-plain how this can also be the opposite %Cim ' .auborgne, (009,. trategy, they say can form the structure of some industries, especially in the situation of blue ocean strategy. They give the e-amples of how company developments of products like the &ord model T and the Gintendo Wii have structured their industries.

Strategy and Management

/n argument has been made by some that the time lag between these theories and their implementation in to the business world means much of the strategy used today is outdated and serves a period prior to its use. 2eter 5rucker %1999, for e-ample, notes that the current general assumptions of management are now obsolete and goes on to give eight new assumptions that he believes need to be implemented otherwise businesses will be left behind. 3is eight new assumptions are9 1. (. +. 6. :. ). ?. 1. .anagement is not only for profit making There is not only one right organisation There is not one right way to manage people Technologies and end users are not fi-ed and given .anagement scope is not only legally defined Gor is it only politically defined The inside is not the only management domain, results e-ist only on the outside .anagement responsibilities are everything that effect the institutions and its results

/nother issue that was noted by Eohn #amillus %(001, was that some strategy can be a "wicked problem. .eaning they are not able to be definitely resolved and that normal linear process of implementation will not work. 3e says wicked problems are uni$ue, have no definite formulation to the problem and have no ultimate test of a solution. Therefore the onus is on good strategic management decision making as well as pre planned models.

Strategy for the Future, Today

2eter 5rucker is reported to have claimed that H cu ture eats strategy for breakfast I, meaning that culture in a company can determine the effects of their strategy9 unless the culture is aligned with the strategy the strategy will not be successful. .a- .cCeown %(01+, on the other hand, in his article "Why Cu ture and Strategy Shou d .at (reakfast Together argues that strategy and culture are both of similar importance but should be looked at in separate ways. .cCeowns book, "The Strategy (ook %(01(,, attempts to e-plain that strategy is about shaping the future for firms and takes a practical approach to bringing a manager through the process of creating and implementing strategy successfully.

/nother interesting look at the evolution of strategy for the future is by Cen &avaro, who contemplates the importance of strategy to be a highly adaptable and dynamic system to deal with the volatility and uncertainty of future markets, while also being a ridged structure for a firm to follow in order to give it direction and a distinct way of thinking %&avaro, (01+,. 5eveloping this thought he claims the ability to be able to adapt strategies and not stray from the overall view of how they add value to a market is based on having a strong foundation. &inding the balance will be one of the great challenges for strategy formulation in the coming decade. /s for the practical implementation of strategy, the >#4 highlight the importance of future strategy is to maintain a sustainable competitive advantage through the renewing of relevant sources of strategy. /dditionally, they are developing new techni$ues for strategy in areas such as9 the internet, radical uncertainty, advantage in a networked world and intellectual property as a competitive weapon %>#4, (01+,.

Conclusion
>usiness trategy has been a hot topic in business literature for the last :0 years9 it $uickly grew from being a means for financial planning in the early second half of the century to a system for innovation, agility and sustainable competitive advantage in hostile modern markets. Gotably, the two main authors, 2orter and .int!berg, have guided the direction of a large proportion of the writings that are out there today. /lso the literature revolves around two methods of approach9 the @esource >ased /pproach and tructure #onduct 2erformance. .int!berg has made the argument that the large ma;ority of the literature out there focuses on relatively small areas of strategy and it is a collection of all the schools that is needed for actual strategy management. trategy literature and the management practice of trategy implementation have strayed from each other in recent times. Theory needs to be constantly developed to account for the current business environment and the new styles of management. The challenge now is merging the actual management of strategy with the academic literature and models designed for strategy formulation.

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