The concept of strategy 23 Strategy is concerned with the long-term direction and scope of an organ zation.It is also crucially concerned with how the organization positions itself with regard to the environment and in particular to its competitors.It is concerned with establishing competitive advantage,ideally sustainable over time,not by technical manoeuvring,but by taking an overall long-term perspective. (Faulkner and Johnson,1992) Strategy is the direction and scope of an organization over the longer term, which matches its resources to its changing environment,and in particular,to its markets,customers and clients to meet stakeholder expectations. (lohnson and Scholes.1993) Strategy should be understood as a framework of critical ends and means. (Boxall.1996) siness strategy is concerned with the match between the internal capabilities ompany and its external environment Kay,1999 The emphasis(in strategy)is on focused actions that differentiate the firm from its competitors. (Purcell.1999) Strategy,then,is a set of strategic choices,some of which may be formally planned.It is inevitable that much,if not most,of a firm's strategy emerges in a stream of action over time. (Boxall and Purcell.2003) THE CONCEPT OF STRATEGY The concept of strategy is based on a number of associated concepts:compet- itive advantage,resource-based strategy,distinctive capabilities,strategic intent,strategic capability,strategic management,strategic goals and strategic plans Competitive advantage The concept of competitive advantage was formulated by Michael Porter (1985).Competitive advantage,Porter asserts,arises out of a firm creating
Strategy is concerned with the long-term direction and scope of an organization. It is also crucially concerned with how the organization positions itself with regard to the environment and in particular to its competitors. It is concerned with establishing competitive advantage, ideally sustainable over time, not by technical manoeuvring, but by taking an overall long-term perspective. (Faulkner and Johnson, 1992) Strategy is the direction and scope of an organization over the longer term, which matches its resources to its changing environment, and in particular, to its markets, customers and clients to meet stakeholder expectations. (Johnson and Scholes, 1993) Strategy should be understood as a framework of critical ends and means. (Boxall, 1996) Business strategy is concerned with the match between the internal capabilities of the company and its external environment. (Kay, 1999) The emphasis (in strategy) is on focused actions that differentiate the firm from its competitors. (Purcell, 1999) Strategy, then, is a set of strategic choices, some of which may be formally planned. It is inevitable that much, if not most, of a firm’s strategy emerges in a stream of action over time. (Boxall and Purcell, 2003) THE CONCEPT OF STRATEGY The concept of strategy is based on a number of associated concepts: competitive advantage, resource-based strategy, distinctive capabilities, strategic intent, strategic capability, strategic management, strategic goals and strategic plans. Competitive advantage The concept of competitive advantage was formulated by Michael Porter (1985). Competitive advantage, Porter asserts, arises out of a firm creating The concept of strategy l 23
24 The conceptual framework of strategic HRM value for its customers.To achieve it,firms select markets in which they can excel and present a moving target to their competitors by continually improving their position. Porter emphasized the importance of differentiation,which consists of offering a product or service 'that is perceived industry-wise as being unique',and focus-seeing a particular buyer group or product market'more effectively or efficiently than competitors who compete more broadly'.He then developed his well-known fr mework of three genericstrategies,inno vation,quality and cost leadership,that organizations can use to gain competitive advantage. A distinction has been made by Barney (1991)between the competitive advantage that a firm presently enjoys but others will be able to copy,and sustained competitive advantage,which competitors cannot imitate.This leads to the concept of distinctive capabilities. Distinctive capabilities or competence can be described as an important feature that in Quinn's (1980)phrase'confers superiority on the organization'.Kay extends this defi- nition by emphasizing that there is a difference between distinctive capabil ities and reproducible capabilities.Distinctive capabilities are those characteristics that cannot be replicated by competitors or can only be imitated with great difficulty.Reproducible capabilities are those that can be bought or created by any company with reasonable management skills,dili gence and financial resources.Most technical capabilities are reproducible. Prahalad and Hamel(1990)argue that competitive advantage stems in the long term when a firm builds'core competences'that are superior to those of its rivals and when it learns faster and applies its learning more effectively than its competitors. Distinctive capabilities or core competences describe what the organi zation is specially or uniquely capable of doing.They are what the company does particularly well in comparison with its competitors.Key capabilities can exist in such areas as technology,innovatic ,marketing,delivering quality,and making good use of human and financial resources.If a company is aware of what its distinctive capabilities are,it can concentrate on using and developing them without diverting effort into less rewarding activities.It can be argued that the most distinctive capability of all is tha represented by the knowledge,skills,expertise and commitment of the employees of the organization.This belief provides the basis for the philosophy of strategic human resource management and human capital management.Four criteria have been proposed by Barney (1991)for
value for its customers. To achieve it, firms select markets in which they can excel and present a moving target to their competitors by continually improving their position. Porter emphasized the importance of differentiation, which consists of offering a product or service ‘that is perceived industry-wise as being unique’, and focus – seeing a particular buyer group or product market ‘more effectively or efficiently than competitors who compete more broadly’. He then developed his well-known framework of three generic strategies, innovation, quality and cost leadership, that organizations can use to gain competitive advantage. A distinction has been made by Barney (1991) between the competitive advantage that a firm presently enjoys but others will be able to copy, and sustained competitive advantage, which competitors cannot imitate. This leads to the concept of distinctive capabilities. Distinctive capabilities As Kay (1999) comments, ‘The opportunity for companies to sustain competitive advantage is determined by their capabilities.’ A distinctive capability or competence can be described as an important feature that in Quinn’s (1980) phrase ‘confers superiority on the organization’. Kay extends this definition by emphasizing that there is a difference between distinctive capabilities and reproducible capabilities. Distinctive capabilities are those characteristics that cannot be replicated by competitors or can only be imitated with great difficulty. Reproducible capabilities are those that can be bought or created by any company with reasonable management skills, diligence and financial resources. Most technical capabilities are reproducible. Prahalad and Hamel (1990) argue that competitive advantage stems in the long term when a firm builds ‘core competences’ that are superior to those of its rivals and when it learns faster and applies its learning more effectively than its competitors. Distinctive capabilities or core competences describe what the organization is specially or uniquely capable of doing. They are what the company does particularly well in comparison with its competitors. Key capabilities can exist in such areas as technology, innovation, marketing, delivering quality, and making good use of human and financial resources. If a company is aware of what its distinctive capabilities are, it can concentrate on using and developing them without diverting effort into less rewarding activities. It can be argued that the most distinctive capability of all is that represented by the knowledge, skills, expertise and commitment of the employees of the organization. This belief provides the basis for the philosophy of strategic human resource management and human capital management. Four criteria have been proposed by Barney (1991) for 24 l The conceptual framework of strategic HRM
The concept of strategy 25 deciding whether a resource can be regarded as a distinctive capability or competency:value creation for the customer,rarity compared to the compe- tition,non-imitability and non-substitutability. The concept of distinctive capability forms the foundation of the resource based approach to strategy as described later in this chapter. Strategic intent In its simplest form,strategy could be described as an expression of the intentions of the organization-what it means to do and how,as Wickens (1987)put it,the business means to'get from here to there'.As defined by Hamel and Prahalad(1989),strategic intent refers to the expression of the leadership position the organization wants to attain and establishes a clear criterionon how progress towards its achievement will be measured. Strategic intent could be a very broad statement of vision or mission and /or it could more specifically spell out the goals and objectives to be attained as ined byMeand over (1996)as: 1 a broad vision of what the organization should be; the organization's mission; 3.specific goals,which are operationalized as: 4 strategic objectives Strategic capability Strategic capability is a concept that refers to the ability of an organization to develop and implement strategies that will achieve sustained competitive advantage.It is therefore about the capacity to select the most appropriate vision,to define realistic intentions,to match resources to opportunities and to prepare and implement strategic plans. The strategic capability of an organization depends on the strategic capa- recognize that,although they must be successful now to succeed in the future,it is always necessary to create and sustain a sense of purpose and direction The resource-based view The resource-based view of strategy is that the strategic capability of a firm depends on its resource capability.It is based on the ideas of Penrose(1959)
deciding whether a resource can be regarded as a distinctive capability or competency: value creation for the customer, rarity compared to the competition, non-imitability and non-substitutability. The concept of distinctive capability forms the foundation of the resourcebased approach to strategy as described later in this chapter. Strategic intent In its simplest form, strategy could be described as an expression of the intentions of the organization – what it means to do and how, as Wickens (1987) put it, the business means to ‘get from here to there’. As defined by Hamel and Prahalad (1989), strategic intent refers to the expression of the leadership position the organization wants to attain and establishes a clear criterion on how progress towards its achievement will be measured. Strategic intent could be a very broad statement of vision or mission and/or it could more specifically spell out the goals and objectives to be attained over the longer term. The strategic intent sequence has been defined by Miller and Dess (1996) as: 1. a broad vision of what the organization should be; 2. the organization’s mission; 3. specific goals, which are operationalized as: 4. strategic objectives. Strategic capability Strategic capability is a concept that refers to the ability of an organization to develop and implement strategies that will achieve sustained competitive advantage. It is therefore about the capacity to select the most appropriate vision, to define realistic intentions, to match resources to opportunities and to prepare and implement strategic plans. The strategic capability of an organization depends on the strategic capabilities of its managers. People who display high levels of strategic capability know where they are going and know how they are going to get there. They recognize that, although they must be successful now to succeed in the future, it is always necessary to create and sustain a sense of purpose and direction. The resource-based view The resource-based view of strategy is that the strategic capability of a firm depends on its resource capability. It is based on the ideas of Penrose (1959), The concept of strategy l 25
26 The conceptual framework of strategic HRM who wrote that the firm is'an administrative organization and a collection of productive resources'.It was expanded by Wernerfelt(1984),who explained that strategy'is a balance between the exploitation of existing resources and the development of new ones'.Resource-based strategy theorists such as Barney (1991)argue that sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. As Boxall (1996)comm ents,Competitive success doe not com e simply from making choices in the present;it stems from building up distinctive capabilities over significant periods of time.'Teece,Pisano and Shuen(1997) define'dynamic capabilities'as'the capacity of a firm to renew,augment and adapt its core competences over time Strategic management The purpose of strategic management has been expressed by Rosabeth Moss Kanter(1984)as being to 'elicit the present actions for the future'and become action vehicles-integrating and institutionalizing mechanisms for change' Strategic management has been defined by Pearce and Robinson(1988)as follows:'Strategic management is the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization.' Strategic management has been described by Burns (1992)as being primarily concerned with: the full scope of an organization's activities,including corporate objec- tives and organizational boundaries; matching the activities of an organization to the environment in which it operates; ensuring that the internal structures,practices and procedures enable the organization to achieve its objectives matching the activities of an organization to its resource capability, assessing the extent to which sufficient resources can be provided to take advantage of opportunities or to avoid threats in the organization's envi- ronment; acquiring,divesting and reallocating resources; translating the complex and dynamic set of external and internal vari- ables that an organization faces into a structured set of clear future objec tives that can then be implemented on a day-to-day basis. The focus is on identifying the organization's mission and strategies,but attention is also given to the resource base required to make it succeed Managers who think strategically will have a broad and long-term view of
who wrote that the firm is ‘an administrative organization and a collection of productive resources’. It was expanded by Wernerfelt (1984), who explained that strategy ‘is a balance between the exploitation of existing resources and the development of new ones’. Resource-based strategy theorists such as Barney (1991) argue that sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. As Boxall (1996) comments, ‘Competitive success does not come simply from making choices in the present; it stems from building up distinctive capabilities over significant periods of time.’ Teece, Pisano and Shuen (1997) define ‘dynamic capabilities’ as ‘the capacity of a firm to renew, augment and adapt its core competences over time’. Strategic management The purpose of strategic management has been expressed by Rosabeth Moss Kanter (1984) as being to ‘elicit the present actions for the future’ and become ‘action vehicles – integrating and institutionalizing mechanisms for change’. Strategic management has been defined by Pearce and Robinson (1988) as follows: ‘Strategic management is the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization.’ Strategic management has been described by Burns (1992) as being primarily concerned with: l the full scope of an organization’s activities, including corporate objectives and organizational boundaries; l matching the activities of an organization to the environment in which it operates; l ensuring that the internal structures, practices and procedures enable the organization to achieve its objectives; l matching the activities of an organization to its resource capability, assessing the extent to which sufficient resources can be provided to take advantage of opportunities or to avoid threats in the organization’s environment; l acquiring, divesting and reallocating resources; l translating the complex and dynamic set of external and internal variables that an organization faces into a structured set of clear future objectives that can then be implemented on a day-to-day basis. The focus is on identifying the organization’s mission and strategies, but attention is also given to the resource base required to make it succeed. Managers who think strategically will have a broad and long-term view of 26 l The conceptual framework of strategic HRM
The concept of strategy27 where they are going.But they will also be aware that they are responsible first,for planning how to allocate resources to opportunities that contribute to the implementation of strategy and,second,for managing these opportu- nities in ways that will add value to the results achie by the firm The process of strategic management is modelled in Figure 2.1.It involves defining the organization's mission,analysing the internal and external envi- ronment,exercising strategic choice(there is always choice),formulating corporate and functional strategies and goals,implementing strategies and monitoring and evaluating progress in achieving goals.But in practice it is not as simple and linear as that.Boxall and Purcell(2003)believe that Mission ent en and threat trategic plans Figure 2.1 Strategic management model
where they are going. But they will also be aware that they are responsible, first, for planning how to allocate resources to opportunities that contribute to the implementation of strategy and, second, for managing these opportunities in ways that will add value to the results achieved by the firm. The process of strategic management is modelled in Figure 2.1. It involves defining the organization’s mission, analysing the internal and external environment, exercising strategic choice (there is always choice), formulating corporate and functional strategies and goals, implementing strategies and monitoring and evaluating progress in achieving goals. But in practice it is not as simple and linear as that. Boxall and Purcell (2003) believe that The concept of strategy l 27 Mission Strategic analysis Internal environment – strengths and weaknesses External environment – opportunities and threats Strategic choice Corporate strategy Corporate strategic goals Functional strategies Functional strategic goals Monitoring and evaluation Strategic plans Implementation Figure 2.1 Strategic management model