Strategy in business

Introduction

Planning comes after very next to the idea of a business. Starting a business, idea comes first, then comes planning which is how the business will be conducted. Strategy is the “planning” of action of a business. People might think of business without any strategy but business is impossible without it. For an example, setting a simple corner shop at the corner of a road can be a general business, but finding an idea of what type of corner shop likely; coffee shop, grocery shop or cyber cafe etc. could be hard. And it would be even harder to ‘ out of how to run or set the business. For this, business needs appropriate strategy.

Knowing some strategies or implementing some strategies into business is not enough. It is essential or the most important to know the appropriate strategy for a certain business. Otherwise a simple business can face failure.

What is strategy in business?

Strategy is the long term pathway to achieve business goals by utilizing its resources within a competitive environment for the satisfaction of stakeholders. Strategy can lead the business into the right direction. It can show what type of planning need to cope up in a difficult situation and to make the business better in that environment. It makes the most of its resources and fulfils the expectations of the stakeholder.

Strategy Concept:

Despite the vast literature on strategic management, there is no single or unique definition, According to Ansoff (1985). Strategic management is a systematic approach to position and relate the firm to its environment is a way which will ensure its continued success and make it secured from surprises (Ansoff, 1985). Cole argued that strategic management is basically concerned with setting the organization headlines aims, choosing the most suitable goals for such aims and achieving both over time. Strategy is then understood to be acting as a guiding map for the organisation to achieve its clear intention for development and growth.

There are many other different definitions generated from the nature of strategy approach, but they all have one thing in common, which is the aim to maximize the organization performance by enhancing its capability of competition with other organizations functioning in the same competitive environment. Although strategic management as a concept can be defined, it seems to have a lot of ambiguities and complications when it is approached or developed. Hamel supported this argument by stating that “anyone who claim to be a strategist should be intensely embarrassed by the fact that the strategy industry doesn’t have a theory of strategy creation” (Hamel 1998 p10).

The main aim of those business strategies are to find an appropriate business model, which emphasis on the appraisals of the external and internal situations and uncover the threats and opportunities in that business environment which will later reveal the strengths and weakness of the organisation.

Compare and Contrast (Whittington’s Strategy Approaches and Mintzberg’s 10 Schools of Thought):

There are different approaches used in strategy. Before implementing or making decisions which approaches to follow, people responsible for making strategy have to understand the approaches thoroughly and have to be efficient in strategic thinking. According to Whittington (2001) strategy can be categorized in four basic standard approaches: Classical, Evolutionary, Processual and Systematic which have different viewpoints about strategy. Classical approach defines the strategy as a rational process of premeditated calculation and analysis designed to maximize long term advantage and organisational profit. As the business environment has changed and market is much more competitive now many researchers argued that classical approach is not appropriate for any business practice, since classical approach has no mechanism to create strategy and is not suitable for the dynamic and competitive business environments. French (2009) concluded that radical change to open system thinking, especially complex self adapting system, is required (French 2009).

In evolutionary approach is different compare to classical approach. Competition is not detached calculation and analysis but by constant struggle for survival (Cuizon 2009). In evolutionary approach successful strategies appear as the process of the accepted selection, which deliver its result. According to Whittington, important decisions have to be taken based on the market not choices of managers. Evolutionary approach considers the markets too competitive and difficult to judge and believes it is unpredictable to plan for long term strategies though it has the similar view with the classical approach in terms of profit maximizing. But it generates an argument as the basic emphasis of this approach is on survival which obviously challenges the objective of maximizing the profit.

Procession approach has similarity with the evolutionary approach in terms of long term planning. This approach doubts the value of realistic long term planning but it disagrees with the evolutionary approach on the basis of the market to decide the profit-maximizing outcomes as the market is in chaos and has lot of uncertainty. Processual approach states that strategy is an emergent process of learning and adaptation (Whittington 2001); it adopts a pragmatic view aiming to make the sophisticated processes simple in light of the fact the environment is not ideal or perfect.

Systematic approach considers that the organisation should have the capabilities and should be able to plan and act effectively. This approach is much less pessimistic than processual approach about the capabilities of the people to carry out rational plans of actions and much more optimistic than evolutional approach about its ability to define strategy regardless of market forces. The approach believes strategies have to be efficient socially to understand the organisation’s business environment. This means that there shouldn’t be any separation between organisational activities and social factors to ensure success.

Table below explains the summery of Whittington’s thoughts of strategy:

Indicators

Classical

Processual

Evolutionary

Systemic

Deterministic – Emergent

Deterministic

Deterministic

Emergent

Emergent

Single goal or Pluralistic

Single

Plural

Single

Plural

Strategy Style

Formal

Crafted

Efficient

Embeded

Influences

Economics

Psychology

Economics/Biology

Sociology

Period (Decade of Influences)

1960s

1970s

1980s

1990s

Table[1] : Whittington’s four approaches of strategy development

Later Mintzberg elaborated those thoughts in contrast to Whittington’s these four approaches we discussed above. Mintzberg categorized strategy into ten schools of thought. Those schools of thought are categorized in two parts.

1. Prescriptive schools: This part contains three schools of thought (Design, Planning and Positioning). It explains how the strategy should be formulated. In 70s and 80s these strategies were in vogue though to some extend still loved by some of the organisations.

2. Descriptive schools: Contains 7 schools of thought (Entrepreneurial, Learning, Power, Culture, Environmental and Configuration). These schools look at the way strategy is and seen, in other words are more about how strategy arises and emerges.

The view of Mintzberg’s strategy was basically a reaction against the linear, rational view of strategy that had dominated strategic management until mid 80s (Mintzberg 1994; Mintzberg et al. 1998). He proposed a practical and incremental view of strategy. This approach is based on observation of how the organisations actually develop their strategies, which are patterns of behaviour that emerged and become ordered over time. Related to that of Mitzberg, Whittington’s approach differs subtly since the focus is upon strategy as a social practice.

Table bellow describes the summary comparison of Mintzberg’s school of thought and Whittington’s approaches of strategy:

Mintzberg

(Learning & Configuration)

Whittington

(Strategy as Practice)

Main messege

The stable actions we call strategy both emerge and are planned, But it is hard to steer changes

Strategy is formed by the practices performed by strategists

Key concepts

Intended, deliberate, emergent and realized strategies. It starts from grassroots.

Practical action, ways of doing things, routines, discourse, technologies and tools

Theoretical subjects

Instrumentalism – Quinn, Trail & Error/Sense

Making – Weick Chandler and business history for configurations

General shift to social science back to practice

Theoretical assumptions

Too complex – uncertain world for rigid plans to work

Day to day activities in local contexts

Cognitive approach

No primacy action/analysis. “Learning by doin” and emergence

Tools and technologies, discussion

Unit of analysis

The whole organisation

The individual strategist

Methodology

In-depth case studies, business histories

Qualitative observed studies emerging

Strategy formation

Strategy is a partly emergent and partly planned process in which a certain course of action stabilizes

The day-to-day practices of strategists underpin organisational strategy formation process

The concept of the school of thought is that the resulting strategy is based on the personality of the strategists plus the results of the tools and models used. Clearly the tools and models used to analyse the industry and eventually Develop the strategy will depend on the school of thought. Hence it is a chicken and egg situation.

However, organisations are often pursued internally or externally to examine their strategic position within a given business, marketplace or industry. To this end a multitude of theories and models have been developed (Koch, p. xiii, 2000) with the intent to determine, develop and disseminate systematically competitive advantages for the company. The overall intended outcome is to strengthen the company’s position in industry and help maintain, if not improve, their competitive position within it.

All strategic approaches offer an insight into the motivation behind the company’s vision and what strategies they most likely implement. Strategists agree on a common point that strategic management process includes analysis, choice, implementation and feedback. Prior to start with strategic management process for any organisation, the strategist should ensure that the organisation already has a well defined and clear mission and vision statements.

Organisation’s mission and vision:

Organisation’s mission is a public statement in which an organisation sets out its vision about how to satisfy customer needs depending on the market conditions and the achievement of such vision. Success of any organisation is usually measured by evaluating its achievements with their set of missions, goals and objectives. Strategic goals can be described as the core of business since they are very important for the success of the organisation.

Bearing in mind the firm’s vision and mission, the strategist works on strategic management process by firstly analysing and scanning the internal and external environment to become better aware of the firm’s position to develop and implement the future actions accordingly.

Strategic management process

This and the following sections of this report are to clarify some of the strategic management process and how it can be implemented in a construction firm characterised by uncertainty and dislocations.

Porter’s Approach

Porter (1980) analysed the structure of an industry environment in terms of five basic forces which are buyers, suppliers, potential competitors, substitutes and competitive advantage (Porter, 1980). Among those forces competitive advantage is the most important force which helps to shapes the organisation according to the market environment. Competitive advantage is a combination of factors that makes an organization more successful than others. The sources of competitive advantage include: organization resources and capabilities, excellence in strategy implementation, quality, time, innovation and creativity (Feurer and Chaharbaghi, 1997). According to many scholars, the best source of sustainable competitive advantage is the organisation’s ability to learn.

Subsequently, organisation has to understand the key external influences on them and has to compare with the organisation’s strengths and weaknesses. This is a crucial factor for the strategist which enables them to make the strategic decision. For example, to choose whether to keep prices lower than competitors or differentiate the offering to provide higher value when compared with offerings of others.

Ansoff’s Approach

Ansoff and Porter have developed different models of strategy choices which can be used to develop possible strategies. Ansoff (1965) carried out systematic series of analysis that would allow organisation to determine what its strategy would be and how to take the further important steps (Cole, 1997). Ansoff presented a matrix that focused on the organisation existing and potential products and market. For example, a construction developer may suffer from his dying product of developing luxury villas while there is a good opportunity in the local market to develop low cost villas. If the developer in terms of marketing is strong, he can obviously go for the choice of developing the low cost villas.

Jay Barney’s approach

Jay Barney’s approach is known as resource-based view of competitive advantage operates on the assumptions that firms are heterogeneous in terms of their control of important strategic resources and that resources are not perfectly mobile between firms. Firm resources are defines as “strengths that firms can use to conceive of and implement their strategies” (Barney 1991). Classifications of resources are physical capital resources, human capital resources and organisational capital resources. Physical technology, plant and equipment, geographic location and access to raw materials come under physical capital resources. Human capital resources are the training, experience, judgement, intelligence, relationships and insight of the individual managers and workers of the firm. Organisational capital resources include the formal reporting structure, the informal and formal planning, coordinating and controlling systems, the informal relations among groups within a firm and other agents in the firm’s environment. Summary of resource-based view is that firm can only have a sustained competitive advantage if it is implementing a value creating Strategy not simultaneously being implemented by any current or potential competitors and controls its physical, human or organisational resources that are valuable, rare, inimitable and non-substitutable.

However, the strategist needs to evaluate the options and make the strategy selection based on some conditions. Firstly, the strategy must give the organisation an excellent chance of meeting its targets and protect it from risks that might drag its performance below target levels. Secondly, the strategy must make use of all the organisation’s most impressive strengths and correct all major weaknesses. Finally, it must reduce the impact of threats and exploit all high potential opportunities (Fellows et al., 2002).

Once the strategic choice is made, implementation is conducted within the framework of action plans. Strategists prefer to focus on revising an existing strategy in an innovative way rather than generating a new one from scratch. They need to consider all the factors of McKinsey 7S model for implementation which are all interdependent. Restructuring management is the hardest job for strategists where co-ordination of the organisation’s operations is the main key.

Feedback and control will be the final stage of strategic management process. This stage involves a continuous monitoring of the strategies and action plans. Its purpose is to give the organisation the opportunity periodically to both control the progress and to review the whole strategic direction that has been selected. This final stage is conducted at three levels of the organisation: operational level, business unit and corporate level.

Practice of Strategy in construction firms

If strategy process theoretically has clear and smooth route as elaborated above, then the question is why do some organisations in construction industry fail in practising it effectively? According to Mintzberg (1994), there is very little evidence of strategic management implementation and effectiveness (Mintzberg, 1994). The reasons may be referred to poor management awareness, lack of clarity about decision making, inadequate communication and collaboration and low levels of accountability. Most of strategic plans fail because they are just exported without being generated from the heart of the local dynamic environment and the firm’s culture.

Construction industry has a unique blend of characteristics that requires a typical treatment compared to other industries. For example, the production activities are mostly conducted on site and the learning curve is compromised due to the uniqueness of projects. Accordingly, strategic approaches and thoughts should be flexible enough to have variations to suit this industry. There is a little literature tackling the strategy approaches and thoughts in construction. This may be referred to the fact that construction is portrayed as a low growth and low tech industry, where the industry has a broad range of sub-sectors and variability in demand.

Fellows et al. (2002) argues that strategic management may be possible only in some organisations, where they are large enough to afford expensive analysis, have clear goals and operate in stable environment (Fellows et al., 2002). This argument is challenged in the sense that the door is always open to innovative strategies that can be implemented to overcome the difficulties associated with strategies in dynamic environments like construction. Cheah and Chew (2005) gave a hint for the need of such innovation stating that dynamic interactions among issues such as project delivery methods and human aspects refute a short listing of generic strategies that might be more feasible for other industries (Cheah and Chew, 2005).

Latham and Egan reports noticed such need before and urged the construction industry to perform better to meet the challenges. Accordingly, many innovative changes to industry started taking place including partnership, strategic alliances, supply chain management and lean construction (Langford and Male, 2001). Top managers have taken further measures by deciding to expand in new markets, adopting new technology or come up with different products or attractive prices to remain competitive. However, they still need to think of further innovative strategies such as enhancing client leadership and building up organisation resources (Blayse and Manley, 2004). They also need to impose effective and precise implementation processes to be able to adopt innovation successfully.

However, Fellows et al. (2002) made a point about the high cost involved with strategy process, since the practice is found to be too sophisticated and subtle to manage with local resources. Many scholars embraced the idea about the practice stating that strategy process is often disconnected from the outcomes because of its complexity (Pettigrew, Thomas and Whittington, 2002). However, the argument here is that the expensive cost associated with developing appropriate strategies for construction projectised firms can not be compared with potential drastic losses due to high risks threatening their business.

On the other hand, having various approaches to strategy indicates the need to a unifying theory that can connect such thoughts to suit the unique construction environment. Also, the understanding of strategy process needs a focus on patterns of decisions and actions rather not on a discrete decision to accumulate into strategies over time. Strategic decisions making in projectised organisations is usually highly centralized and bureaucratic which deprives the organisation from the creative employees’ ideas and thoughts. Organisational culture needs to change to motivate the head office staff to execute the intended strategy without reservation. This should be applicable to projects personnel as well who should be invited to contribute to the whole organisation strategy(Marja, Päivi and Heikki, 2007).. Accordingly, they can draw upon such strategy effectively and build their own project strategy to achieve the overall goals.

Case study of Guangsha group

Success story of Guangsha group, the leading Chinese construction enterprise in implementing its strategy demonstrates how the firm has considered the unique characteristics of construction environment it relates to and has drawn upon the strategy thinking to reach its leading position in the global market.

Since the inception of Guangsha group in 1992, the founder envisioned that the group will grow into a multinational construction giant by 2010. The founder focused on building the human asset of the organization. His management culture is people-centered, with imperatives to empower his managers and granting independence to the various strategic business units. These units are organized interdependently, reinforcing and supporting each other to attain overall competitive advantage.

Within Guangsha Construction, the firm has grown rapidly through many acquisitions which have strengthened its human resource capability and technology and expanded its market reach. Using its financial prowess, it built up its research and development expertise, quality management system and created a brand name for itself in project performance. By integrating its construction expertise with the Property and Investment business units, it provided a total service package to its domestic clients, a competency which gave it a competitive advantage in the industry. Through partnering and strategic alliances, the international strategic business units had successfully penetrated into ten regional and international markets, offering industrial park and infrastructure services to international clients.

Guangsha’s success clearly shows some of its strength factors. Firstly, the importance of human assets was represented by the founder vision in expanding the firm and the emphasis put on the development of the human assets. Secondly, its independent structure was shaped to use the firm’s acquisitions strategy and to react to the dynamic capital market. Lastly, the firm’s success has resulted in many awards that strengthened its reputation further.

Conclusion

In presence of various schools and approaches to strategy, there is a demanding need to a unifying approach to simplify the understanding of strategic practice and make it more feasible and effective for construction firms. Strategists should deeply understand their dynamic business environment and exploit their strengths effectively to remain competitive. In the absence of a unifying theory, strategists should implement innovative measures in adopting a mix of the most appropriate approaches to suit the unique characteristics of construction. To sum up, it is not the strategy which will determine the organisation success but the firm’s effectiveness in using its capabilities and human resources to implement the strategy.

References:

Barney, Jay B (1991), “Firm Resources and Sustained Competitive Advantage,” Journal of Management, 17 (1), 99-120.

Koch R (2000), “The Financial Guide to Strategy – how to create and deliver a useful strategy,” 2nd edition, Prentice-Hall.

Mintzberg, Henry (1994), The Rise of Managerial Work, New York, Prentice-Hall.

Mintzberg, Henry (1998), Bruce Ahlstrand, and Joseph Lampel (1998), Strategy Safari, London, FT/Prentice-Hall.

Whittington, Richard (2004), “Strategy after modernism,” European Management Review, 1 (1), 62-68.

Whittington, Richard (1996), “Strategy as Practice,” Long Range Planning, 29 (5), 731-35.

Tables:

“Whittington’s four approaches of strategy development”, http://129.3.20.41/eps/get/papers/0506/0506002.pdf, viewed on 2nd of December 2009.