Question

What is strategy? Identify three strategy theories. What are the characteristics of each? Please provide an example for each strategy theory.

Answer 1

Strategy is defined as a plan of action designed to achieve a long-term or overall aim.

The objective of strategy is to create advantage, sustain advantage, and renew advantage in order to produce superior value for the business ecosystem. Theories of strategy attempt to explain the underlying forces which produce this advantage or are the primary factors of consideration in producing advantage.

Three strategic theories are mentioned below

(a) Henry Mintzberg theory

(b) Michael Porter theory

(c) Igor Ansoff theory

(a) Henry Mintzberg has been called 'the great management iconoclast' owing to his willingness to attack previously sacred concepts in business and management. His commonsense approach to management issues has earned him a very wide following and he is perhaps best known for his work on business strategy, where he is said to have exposed the gaps between academic concepts of strategy and reality.

Basically Henry Mintzberg theory has six characteristics such as

1.Managers process open-ended workloads;they are capable of doing a lot of work under demanding time constraints.

2.Managers start up their own activities and subsequent actions. These activities are varied and fragmented and they are relatively short in duration.

3.Managers prefer to avoid information from reference materials such as notes and documents.

4.Managers prefer verbal communication, such as one-on-one talks, telephone conversations and meetings.

5.Managers maintain relationships primarily with subordinates and external parties and secondary with their superiors.

6.Managers like being involved in preparatory decisions.

Examples of this theory is :-

The entrepreneur acts as an initiator, designer, and encourage of change and innovation.Roles encourage managers to create improvement projects and work to delegate, empower and supervise teams in the development process.

(b) Michael Porter the other main modern-day strategist, adopted a particular focus on organisational and governmental competence and competitiveness and has written several popular books on business strategy; he has also developed a number of often-used tools and techniques, two of which, his 'Five Forces' and 'Value Chain' models are described later in this module.

This theory has five characteristics such as

1.The entry of competitors (how easy or difficult is it for new entrants to start to compete, which barriers do exist)

2.The threat of substitutes (how easy can our product or service be substituted, especially cheaper)

3.The bargaining power of buyers (how strong is the position of buyers, can they work together to order large volumes)

4.The bargaining power of suppliers (how strong is the position of sellers, are there many or only few potential suppliers, is there a monopoly)

5.The rivalry among the existing players (is there a strong competition between the existing players, is one player very dominant or all all equal in strength/size)

Examples of this theory is :-

Throughout the relevant sections of Competitive Strategy, Porter uses numerous industry examples to illustrate his theory. Since those examples are now over twenty years old, changes in technology and other industrial shifts and trends have made them somewhat obsolete. Although immediate praise for the book and the five-forces model was exhaustive, critiques of Porter have appeared in business literature.

(c) Igor Ansoff is another acknowledged contributor to the development of thinking and practice on business strategy. Regarded by many as one of the pioneers of strategic planning, he was a strong proponent of the 'Planning' school of thinkers. His book 'Corporate Strategy' published in 1965 focused largely on the external, rather than internal, concerns of organisations, including the matching of products to different types of markets - for the analysis of which Ansoff introduced his well known Matrix (Ansoff's Matrix), another strategic planning tool that is still widely used today.

Ansoff matrix basically has four characteristics such as

1. Market Penetration. The first quadrant in the Ansoff matrix is market penetration. It is often adopted as a strategy when the organization has an existing product with a known market and needs a growth strategy within that market.

2. Market Development. Market development is the second market growth strategy in the Ansoff matrix. This strategy is used when the firm targets a new market with existing products

3. Product Development. Product development in the Ansoff matrix refers to firms which have a good market share in an existing market and therefore might need to introduce new products for expansion.

4. Diversification. The diversification strategy in the Ansoff matrix applies when the product is completely new and is being introduced into a new market.

Examples of this theory is:-

Igor Ansoff identified four strategies for growth and summarized them in the so called Ansoff Matrix. The Ansoff Matrix (also known as the Product/Market Expansion Grid) allows managers to quickly summarize these potential growth strategies and compare them to the risk associated with each one.