Strategic Management - Introduction

1. Basics

“The art of war is of vital importance to the State... It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry, which can on no account be neglected.” (Sunzi, 2006)

Replace “art of war” with strategy and you have a better idea what strategy is about. The company which has the best applied strategy will succeed. The company without any kind of strategy, plan, concept or goal will vanish.

So let’s first define what is considered as strategy, second show its implementation in a business environment and third take a look at the real challenge.

Good Strategy/Bad Strategy: the difference and why it matters

a. What is Strategy?

Maybe the easiest way to explain strategy is to use chess as an example. If you “just play” by the means of just react to the opponents moves, it will probably be a lucky throw if you occasionally win. Good players calculate a lot of moves in advance. They have a tactic. They have a strategy.

The Harvard Professor Michael Porter tried to answer this question 1996. Strategy is nowadays different from former time definitions. Positions change. A competitive advantage can be temporary when competitors are copying very quickly. This is why he pointed out that strategy is not operational effectiveness.

Operational effective is a company which does basically the same things like its competitors, but better (faster, cheaper or higher quality). But this is not strategy. On the first glance it might be the key to be successful in business. Well, maybe on the short run. But on the long run it is important to take positions. Porter emphasized 3 kinds of positioning:

• variety-based, the company focuses on a specific product or service (example: Persil produces only washing powder since decades)
• needs-based, the company covers more needs of customers than its rivals (example: Apple offers computers, smartphones and maybe cars in the future)
• access-based, segmenting customers by a certain criteria (e.g. geography, demography) example: Amazon accesses its customers only via internet. Starbucks can only be found in big cities, airports, train stations but not on the countryside.

To reach a sustainable strategic position, trade-offs are sometimes necessary. Especially when two activities are divergent. For example offering products to the lowest price and the best quality on the market. Here the company would have to decide where to focus on and which activity should be stopped. In the end all activities have to lead into the same direction.