Strategy Introduction - Understanding Strategy and Strategic Decisions

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Introduction to Strategy
What Is It & How Does It Work?

In November of 2006, Yahoo! Manager Brad
Garlinghouse issued a memo – known as
“The Peanut Butter Manifesto” – that directly
challenged the senior management with not
having a strategic vision.

At Yahoo!, growth had slowed. Google
had overtaken them in online
advertising revenues and the share price
had fallen by over 30% since the start of
the year.

According to Garlinghouse, Yahoo! was
spread too thin – like peanut butter –
and it was time for strategic change.

Now, all organizations are faced with
challenges when it comes to strategic
change – some from a desire to grab
new opportunities other to overcome
significant problems, as Yahoo! had

Before we can talk about what strategy
is, we have to understand what strategic
decisions are and what types of
problems they can potentially cause…

Strategic decisions are about:
The long term direction of an
organization and the scope of its
activities

Gaining advantage over competitors and
address changes in the business
environment

Building resources and competences
(capabilities) and achieving the values
and expectations of stakeholders

Strategic decisions are extremely
important to an organization’s growth
and future!

As a result, they are likely to:
Be complex and made in situations
of uncertainty with its overall effect
being operational decision making

As a result, they are likely to:
Require an integrated approach –
internally and externally – and
involve considerable change

But then if you don’t have a strategy,
everything is hodgepodge.

Strategy & Strategic Management
The Difference

The words strategy and strategic
decisions are typically associated with
issues like:

The long-term direction of an organization.
In the Yahoo! example, Garlinghouse
explicitly recognized that strategic change
would require a “marathon not sprint”
mentality

The scope of the organization’s activities
Should the organization concentrate on one
area of activity or should it have many?
Garlinghouse believed that Yahoo! Was
spread too thinly over too many different
activities

Advantage for the organization over
competition
The problem at Yahoo! was that it was losing
its advantage to faster-growing companies
such as Google.

Advantage can be achieved in different
ways and mean different things to
different people – so make sure that you
understand what it means to your
industry

A strategic fit with the business environment
Organizations need appropriate positioning in
their environment to meet clearly defined
market needs

This might mean a small business looking for
its niche in the market or a MNC seeking to
buy up businesses that have already found
their position.
Garlinghouse felt that Yahoo! was trying to
succeed in too many environments.

Maximize the organization’s resources
and competences
Strategy is about exploiting the strategic
capability of an organization to provide
competitive advantage and/or yield new
opportunities

The values and expectations of powerful
actors in and around the organization
Individuals, groups an even other
organizations can drive fundamental
issues such as expansion or
consolidation, or where the boundaries
are drawn for the organization’s activities.

At Yahoo!, managers may have pursued
growth in too many directions and been too
reluctant to hold themselves accountable.
But lower-level managers, ordinary
employees, suppliers, customers and Internet
users all have a stake in the future of Yahoo!
too.

The beliefs and values of these
stakeholders will have a greater or lesser
influence on the strategy development
of an organization depending on the
power they hold

So the most basic definition of strategy:
The long-term direction of an
organization

But, with all of these characteristics, we
can develop a clearer, fuller definition…

Strategy is the direction and scope of an
organization over the long term, which
achieves advantage in a changing
environment through its resources and
competencies with the aim of fulfilling
stakeholder expectations.

Complexity is a defining feature of
strategy and strategic decisions no
matter whether you are a MNC or a
small business

What are some of the complexities?

Uncertainty is inherent in strategy
because nobody can be sure about what
the future holds

Operational decisions are linked to strategy.
Any attempt to coordinate Yahoo!’s business
units more closely will have a knock-on
effects on web designers, links, career,
development and advertiser relationships

This link is important for 2 reasons:
If the operational aspects are not in line with
the strategy, then no matter how well
consider the strategy, it will not succeed

This link is important for 2 reasons:
It is at the operational level that real
strategic advantage can be achieved

Integration is required for effective strategy
Manager must follow cross functional and
operational boundaries to deal with strategic
problems and come to agreements with
other managers who have different interests
and priorities

Relationships and networks outside the
organization are important in strategy

Change is a typically crucial
component of strategy, which is often
difficult because of the resources and
organizational change

According to Garlinghouse, Yahoo!’s barriers
to change seemed to include a top
management that is afraid to take hard
decisions and a lack of clear accountability
amongst lower-level management.

Three Levels of Stratgy

Strategies exist at multiple levels in an
organization. Each level can have an
independent strategy or certain levels
can be working from one strategy.

There are three (3) distinct levels of
strategy that we need to understand…

Level 1 – Corporate Level Strategy
Corporate level strategy is concerned with the
overall scope of an organization and how
value will be added to the different parts
(business units) of the organization.

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Corporate Level Strategy
Influencers
 Geographical coverage
 Diversity of products/service or business units
 How resources are allocated between different parts of
the organization

Corporate Level Strategy is concerned
with the expectations of the owners,
shareholders and stock market; and
usually takes the form of a “Mission
Statement”

Corporate Level Strategy is important
because it determines the range of
business to include in other strategic
decisions

Level 2 – Business Level Strategy
Business Level Strategy is about how the
various businesses included in the corporate
strategy should compete in their particular
markets.

Business Level Strategy is sometimes
called Competitive Strategy

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Business Level Strategy
Influencers
 Decisions about how units should provide best value
services
 Pricing Strategy
 Innovation and differentiation

So Corporate Level Strategy involves
decisions about the organization as a
whole, while Business Level Strategy
relates to strategic business units (SBUs)
within the overall organization

What is a Strategic Business Unit?

An SBU is a part of an organization for
which there is a distinct external market
for goods and services that is different
from another SBU.

In Yahoo!’s case, the SBUs would be
Yahoo! Photos and Yahoo! Music, for
example.

Now, you may be thinking that is a huge
organization, what about small
businesses?

Small and Medium sized Enterprises
(SMEs) also have corporate and business
level strategies, but there is a greater
similarity within them.

The Corporate Level Strategy provides
the framework for whether and under
what conditions other business
opportunities might be added or
rejected.

One thing to keep in mind – the corporate
strategy should support the SBUs, but the
SBUs have to make sure their Business Level
Strategies do not damage the corporate or
other SBUs in the group.

Level 3 – Operational Strategy
Operational strategies are concerned with
how the component parts of an organization
deliver effectively the corporate- and the
business-level strategies in terms of
resources, processes and people.

In most businesses, successful strategies
depend on the decisions that are taken,
or activities that occur, at the
operational level – making these
strategies extremely important.

The Vocabulary of Strategy
Knowing the Terminology

There are 8 terms that you will see in
association with any strategy-related
discussion.

These terms provide a framework for
anyone discussing or learning about
strategy, thus we will add them to your
vocabulary.

Mission
A general expression of the overall purpose of
the organization which is in line with the
values and expectations of major
stakeholders and concerned with the scope
and boundaries of the organization.

The easy way to remember the Mission
is “What business are we in?”

Vision or Strategic Intent
The desired future state of the organization.
It is an aspiration around which a strategist
might seek to focus the attention and
energies of members of the organization.

Goal
The general aim in line with the Mission.
Can be qualitative.

Objective
A more precise aim in line with the goal.
Is usually quantified.

Strategic Capability
Concerned with the resources and
competences that an organization can
use to provide value to customers or
clients.

Business Model
Describes the structure of product,
service and information flows and the
roles of the participating parties

A traditional model for manufacturing is
a linear flow of products from
component to product to distributor to
retailer to consumer. Information may
flow directly between the product
manufacturer and the final consumer.

Strategic Control
Monitoring the extent to which the
strategy is achieving the objectives and
suggesting corrective action (or a
reconsideration of the objectives)

So What Did We Learn?

Strategy is relevant to a wide range of
contexts.

A small entrepreneurial start-up will
need a strategy statement to persuade
investors and lenders of its viability.

Public sector organizations need strategy
statements not only to know what to do,
but also to reassure their funders and
regulators that what they do is what
they should be doing.

Voluntary organizations need to
communicate exciting strategies in order
to inspire volunteers and donors.

SBU managers need to propose clear
strategies that are consistent with the
objectives of their corporate owners and
with the needs of other SBUs within the
corporate whole.

Privately-held organizations need
persuasive strategy statements to
motivate their employees and to build
long-term relationships with their key
customers and suppliers.

Strategy is everywhere in business, even
when we don’t see or understand it. It
serves a number of purposes to drive
organizations forward.

The study and understanding of strategy
is critical to being successful in business
because understanding it makes you
look at factors that are internal and
external to your own control, planning
for the impact they could have on your
organization.

Strategy Introduction - Understanding Strategy and Strategic Decisions

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