The word strategy (derived from the Greek word for general ship) was initially applied only to warfare. When applied to business “wars” it similarly refers to the establishment of objectives, the setting of direction, and the development and implementation of plans, with the goal (in place of military victory) of achieving ascendancy over one’s adversaries. In order to have the desired competitive impact, therefore a strategy has to operate over an extended time horizon and embrace a broad spectrum of activities, ranging from resource allocation processes to day-to-day operations. It must hold decisions affecting these different sets of activities into a coherent pattern, both over time and across groups that often compete for the same resources. An effective strategy also usually entails concentrating a company’s efforts and resources on a limited range of pursuits. Focusing resources on certain pursuits reduces the resources available for others, however so a coherent strategy usually requires that a company make trade-offs among various good things.
The word strategy is used in so many contexts that it is useful to identify and contrast three different types of management related strategies. At the highest level, corporate strategy encompasses decisions regarding the industries and markets in which it participates (and, by omission those in which it will not) how it structures itself in order to attack those markets, and how it acquires and allocates key corporate resources to various activities and groups. The second level is associated with each of the corporation’s strategic business units (SBUs) – usually a subsidiary, division or product line. Each SBU might have its own business strategy which specifies 1) the scope of that business and its relationship to the corporation as a while and 2) how it proposes to position itself within its particular industry so as to achieve and maintain a competitive advantage. As given SBU might achieve a defensible competitive advantage in various ways, including such generic ones as low cost/high volume, product innovation and unique features, or customized service in selected niches. To be effective this advantage must meet important customer needs, take into account competitors strengths and weaknesses and be sustainable given the SBUs capabilities.
The third level is composed of the functional strategies that support the type of competitive advantage being pursued. A typical SBU might have four such functional strategies, a marketing /sales strategy, an operations strategy, a financial / control strategy, and a research / development strategy. Decisions in such area as pricing, promotion and field service – all subparts of the marketing functional strategy clearly would be very different if the desired advantage were high volume /low cost rather than , say unique features / customized service. Similarly decisions regarding the product technologies to be pursued, whether to be a technological leader or follower and whether to emphasize development engineering or basic research all constitute subparts of the R&D functional strategy. In some SBUs, other functions might be involved such as physical distribution, field service, and human resource management.
It should be emphasized that a functional strategy is defined by the pattern of decisions actually made, not what is said or written in annual reports or planning documents. Some writers distinguish between an enunciated (or planned) strategy and an implemented strategy. We do not make that distinction because it suggests that developing a strategy and then implementing it are somehow separable. As we treat the development of an operations strategy as an interactive process involving both planning and execution at various levels and in different areas.
The activities required to implement a strategy takes place along both horizontal and vertical dimensions. Vertical activities are those that relate a given function to the business as a whole, or relate a sub-function to the larger function. Such activities follow classic hierarchical organizational relationships. Horizontal activities are those that cut across multiple functions at fairly low levels in the organizations and require more coordination and consistency among functions than do vertical activities. Examples include quality improvement, product development and rollout and large scale engineering /IT projects.
Formulating and implementing an effective strategy takes a long time and requires the support and coordinated efforts of many people throughout an organization. As a result, once in place, a strategy is difficult to change, so it is essential that it be based on a set of values that are widely shared and expected to endure. Such values encourage certain modes of behaviour and suggest how the company ought to behave towards its employees, customer, suppliers, and communities. They not only establish the context within which day-to-day operating decisions are made, they help unify the various corporate, business and functional strategies adopted by different groups within the company and also set limits on the strategic options available to it. Reinforced through conscious and subconscious behaviour at all levels, they create a culture that ties people together, guides their efforts, and gives meaning and purpose to their work.