What Is Strategy And Its Importance In Business?

History of the strategy and its development

Strategy can be defined as an action which is generally taken by the management in order to achieve the different goals as well objectives of the organization. According to Alkhafaji and Nelson (2013), the strategy is generally stated to be the general direction which a firm sets for itself and the different smaller milestones which it will be required to achieve in order to see to it that they prosper in the future and are successfully able to engage in a detailed process of strategy planning.  Ansoff (1965) states that a strategy is often known as a process whereby all the organizational activities are well integrated into the different resources so that the present objectives of the firm can be attained. Hence, it is for this reason that it is considered to be crucial that when any organization is formulating any strategy then the different stakeholders like the customers, employees, suppliers and the competitors are considered adequately. Barney (1986) states that the best aspect of any strategy is that it takes into consideration the uncertainty of the different events and then seeks to form a blueprint of the different decision making aspects which would then help in ensuring that the different key policies formed, consider the key aspects which have an impact on the overall operations of the firm.  There are various types of strategies which a business is generally required to undertake for the long term developments and other routine operations.

A strategy is considered to be a crucial part of an organization because it forms a well-defined roadmap of the firm and helps in the maximization of the strengths of a firm and to minimize one`s weaknesses at large. According to Barney (2014), a strategy is known to bridge the gap between the place where the organization is at the present and where it would require to be in the future. Strategy helps in providing the directions for the firm which is followed by a detailed action plan which can be used to be adequate decisions. Moreover, as agreed by Bettis et al. (2014), a strategy also helps in prioritizing various activities and aligns the different choices which are made by the firm which helps the organization to cover everything with respect to a particular timeline.  Another benefit of a strategy is that it helps in communicating in the right manner with the different members of the organization and thereby contributes towards the enhancement of the commitment from the employees which assists to achieve the objectives fast (Bryce 2017). As stated earlier, there are various categories of strategies which can be rightfully adopted by the organization whether to achieve a long term objective or to achieve a new direction.

The particular review of literature will concentrate on the Porter`s generic strategy and will be making use of wide sources of literature to compare and contrast with respect to the different strategies which are available and which one suits the organization in the best manner (Eden and Ackermann 2013).  The porter`s generic competitive strategies concentrates on the manner in which the generic competitive strategies are required to be carried out and how the firm needs to compete in the external market. The primary aim of this review of literature is to analyze the basic concept of the strategy and analyze the manner in which the strategies have been developed in the past and how they have an overall impact on the firm`s vision and mission. This will be followed by the true meaning of strategy and how it can be used to gain a competitive advantage (Frynas and Mellahi 2015). Through this review literature, the primary aim lies to achieve adequate knowledge with respect to the strategy and the manner in which it has evolved.

Framework of the Strategic management and Porters Generic Strategy

Figure 1: The evolution of strategic management

(Source: Ghemawat et al. 2010).

Strategy is not considered to be a new concept but instead is a concept which is prevailing since the year 1950s. The dominant theme of a strategy in the early 1950s was in regard to the Budgetary, Planning as well a control whereby it was crucial that the strategy of a firm helped it to look after various aspects like that of financial control of funds, capital budgeting and planning along with the coordination and control with respect to budgeting systems. Additionally, as agreed by Ginter, Duncan and Swayne (2018), the concept of strategy was very simple at that time and did not concentrate much on the overall long term growth of the firm.

The next phase of the strategy was based on corporate planning. In this phase, strategy was considered as a key aspect of diversification and growth. Hax and Majluf (1996), it came to undertake a crucial role whereby the planning activities were largely concerned with the forecasting and planning with respect to the growth of the firm. In the third phase,  the time frame between the Mid 70s and the mid-80s was considered whereby strategy formulation was considered to be related to the positioning of the firm in the market and ensuring that it involved aspects like segmentation, diversification, positioning for leadership and other related tasks. According to Hill, Jones and Schilling (2014), in the late 1980s the strategy formulation and implementation was primarily concerned with looking after the competitive advantage of the firm whereby it was the primary goal of the organization to ensure that they formulate strategies which will then help the firm to gain a competitive advantage and be able to ensure that they become the leading company. Lastly, it was the era of 2000s where the strategic formulation and its objective became strategic innovation with respect to which it can be stated that a strategy can be rightfully used to bring about considerate innovations in the business environment and to ensure that the firm is the first mover in such a case.

As the Porter`s generic strategy has been selected for the discussion, in relation to that, it can be stated that, in the year 1980, the strategy of any organization needs to ensure that it either targets a cost leadership strategy, differentiation strategy or a focus strategy. The porter’s generic strategy is largely centered on these strategies in order to ensure that a firm is successfully able to utilize its ability and the resources effectively in order to see to it that they are able to gain a long term objective and ensure that their risks are minimized consistently. According to Hubbard, Rice, and Galvin (2014), the concept of choice was quite different earlier and in the 1970s the concept was largely concerned with the market share pursuit and it was a fact that the different companies who pursued the highest market share position achieved cost advantages. However, the concept of differentiation and focus were considerably new.

According to Jarzabkowski and Kaplan (2015), the empirical research which took place with respect to the impact of the marketing strategies on the profit, it helped in the indication that the firms which function in the high market are quite profitable but then there existed good firms which function in the low market share. Porter suggested that the firms which were successful in the high market were because they followed a cost leadership strategy and those who were successful in the low market were because they were focusing on a small niche.  Moreover, Lasserre (2017) mentioned that in a similar manner, the firms who were in the middle did not perform well because they had a general approach. It was in this manner that Porters believed that the different strategies of a firm need to be combined together in order to ensure that the firm will successfully be able to ensure it gains considerable success in the long run.

Figure 2: The framework of a strategy

(Source: Merat and Bo 2013).

The strategy can be rightfully defined as the main procedures which are required to be followed by an organization in order to ensure that it is being able to achieve its long term objectives and also ensure that it will be able to meet the different industrial requirements. The basic framework based on which the strategy works as is based on the given figure (Mintzberg 1987). The figure states that the strategy forms a link between the firm and the Industry environment. This means that when the firm is primarily concerned with the goals and the values of the organization, the different resources and capabilities, along with the structure and the system and with respect to it, it is the strategy which connects it to the realm of the outside firm which comprises of different factors like the customers, suppliers and the competitors. Morschett, Schramm-Klein and Zentes (2015) advocate that if there does not exist a profound strategy to connect the firm and the outside industry then the organization will not be able to perform in the industry for long and would ultimately be required to succumb to competition.

The Porters Generic strategy serves as a good manner in which an organization can understand the ways in which it can compete against the different companies in order to ensure that they are able to create a competitive positioning for itself in the market. According to.., any firm can have two kinds of competitive advantage which can be exploited with respect to the resources of the firm (Olins 1990). These two advantages include differentiation or low cost. With respect to this, along with these two concepts, there exists three primary strategies which are Cost leadership strategy, differentiation strategy and the Focus strategy. As per Porter and Michael (2001), the focus strategy can be further differentiated into strategies like the cost focus and the differentiation focus strategy.

Figure 3: The competitive business strategy of Porter

(Source: Porter 1979).

The cost leadership strategy can be described as a strategy which helps an organization to become a low cost producer in the particular industry. There may a large number of sources which contribute to the possibility of such a situation.  According to Porter (1989), these factors may be economies of scale, access to the different materials as available, the technology as available and other related factors. Any low cost producer present in the industry must ensure that they are successfully able to take advantage of all their capabilities and attain a competitive positioning in the market (Porter 1989). If the firm is adequate in size it will also be able to command the prices at an industry average.

The strategy also ensures that the company is able to win the market by making an appeal to the different cost conscious or price sensitive customers. In this manner, if the firm is able to offer the lowest prices to the different customers then it is able to attain a larger market share and also able to gain a considerable return on investment.  According to Porter (1996), all firms who aim to attain this advantage need to make the maximum utilization of the resources which are available to them. In this manner, they will be able to ensure that there does not exist any wastage and thereby the production results in the lower costs of the firm.  Moreover, another strategy which can be rightfully used by the firm is that engaging in low direct as well as indirect operating costs. In this manner, the firm will be able to ensure that it is offering standardized products which are no frill in nature and no additional amenities are offered.

When the overall operations of the firm are limited then, it may lead to ensuring that the costs which are incurred are quite low in nature.  Porter (1996), agrees that the third way in which a firm can control its costs is by ensuring that the value chain of a firm encompasses all the functional groups which are present. In this manner, there will take place a procurement advantage which will ensure that all the operations remain in the hands of the firm and that all the departments are aware of the tasks which are to be undertaken by one another. This strategy is popularly used by Dell who initially increased its market share by keeping the different inventories at a low and thereby build the computers only with respect to which the different orders were received at large. According to Rothaermel (2015), one notable aspect about the cost leadership strategy is that it can be freely adopted by the different firms which are large in size. Additionally, it also needs to be understood that the different firms which are small in size cannot be cost leaders because of their size which disables them to have an influence on the particular target market and be a market leader.  However, a disadvantage of the cost leadership strategy is that it is unable to attain the advantage of customer loyalty as once the users which are supportive to the price might shift if they have an access to the pricing which is cheaper. More often, the image of a cost leader often gets associated with that of low quality as in order to ensure that its costs are low, it may have to compromise on the quality.

The differentiation is another kind of strategy which primarily deals with the firm being quite unique in nature whereby its offerings are greatly liked by the target market and the dimensions of the firm are largely preferred by a certain group of customers (Teece 2010). A product has various attributes but generally it makes a decision and selects one or more attributes which it can target and then uniquely positions itself accordingly. Once it is successfully able to meet the needs, a unique price is offered by the customers.

According to Teece (2010), the differentiation strategy is a strategy which is use by a large number of customers. These customers comprise of the company like Hero, Asian Paints, HUL, Nike athletic shoes, BMW automobiles, Apple computers and the Mercedes Benz. The company decides to ensure that at least one aspect of the product being offered is unique and it is inn return of this unique aspect that the customers offer a good price to the seller. According to…, a differentiation strategy is considered to be a crucial one only if the target segment which has been targeted is not price sensitive in nature. In addition to this, it needs to meet the specific needs of a customer. The differentiation can come in the form of the unique resources which a firm possesses. In addition to this, it includes aspects like the Intellectual property, the unique resource and other rights, talented human resource and other innovative processes. Wheelen et al. (2017), believe that another factor which contributes towards considerable differentiation strategy is successful brand management which will result in the success of the firm. This strategy is very often applied by the Chiquita which branded bananas, Starbucks which banded coffee and Nike which branded sneakers. Another aspect which needs to be noted is that the differentiation strategy cannot be considered to be an adequate strategy for smaller firms and instead can be considered to be a better strategy for the large companies as an incredible functional group and its presence is critical to the overall success of the firm at large.  With respect to the differentiation strategies the case of Coca cola and the Royal crown beverages can be considered to be a good aspect which would go a long way in ensuring overall success of the firm.

A focus strategy can be described as a strategy which focuses on the specific choice of a narrow scope within a particular industry. The focuser strategy aims to select a particular target market segment and seeks to ensure that it is able to tailor its need with respect to the needs of the different customers. The focus strategy has two different variants. These variants are cost focus and differentiation focus (Whittington 2001). The cost focus seeks to ensure that the differences between the cost behaviors in the segments is adhered to whereby the differentiation focus seeks to identify the focus between the segments. The choice of making the offering can be based on the company as well as on the needs of the selected target market. The firm aims to ensure that by its engagement in the focus strategy it is successfully able to focus its marketing efforts with the help of which it will be able to narrow down its efforts to certain limited markets. According to Whittington (2001), this saves the time and effort as placed by the company on the different organizational members.  A large number of companies make use of the focus strategy and these are companies like Southwest Airlines which provides a short haul point to point airlines against the offerings made by the mainstream carriers like the United and American airlines.

The strategy has a great role to play in the different aspects of the organization and go a long way in ensuring that the different members of the management are able to successfully set the direction for the firm and form the vision as well as the mission statement. According to Williamson et al. (2013), formulation of a strategy is a difficult task and although there are considerable risks presents which stress on the fact that a strategy is highly beneficial for the overall benefit of the firm at large. Various CEOs have recognized the value of forming a strategy which although takes considerable effort, brings about various benefits for the overall welfare of the firm. The different advantages of a good strategy have been discussed in the given section.

Porter (1996) argued that the forming the missions can be a time consuming task and with respect to this, it becomes easy to make use of a strategy and ensure that the right mission can be set for the right time. For instance, with respect to the Porters generic strategy if a firm sets is strategic direction as cost leadership, then its mission must be inclined in the same manner and be able to cut down the considerable costs of the firm. In the same manner, if the strategy is to engage in various differentiation practices, then the mission statement must include innovation as the strategic mission at large.

The strategy also goes a long way in deciding upon the strengths and weaknesses of the organization. This means that it forces the company to plan whether they have the adequate resources in reality which would help it to attain success or whether it was a myth in which the firm believed. With respect to the Generic strategies of Porter`s an example may be taken which reflects that if a firm decided to go ahead with the cost leadership strategy then it would be required to ensure that they have the resources to do so or not.  This also assists the business in deciding upon its positioning for the competitive environment.

According to Zott and Amit (2013), a strategy helps a business to understand the manner in which they will be required to apply their knowledge and ensure that they can easily achieve their goals. A strategy assists in defining and driving decisions in the organization and it also assists in ensure that the future of the organization is designed well. Moreover, a strategy also helps to allocate the resources adequately as it assists in making the right choices. For any kind of the generic strategy, the allocation of the different resources has a key role to play.

Lastly, a strategy also helps in scanning the environment carefully. In case of the Porter`s generic forces, it might become difficult for the organization to make the right decisions because they may not know the manner in which the right factor needs to be utilized. Hence, in this manner, a strategy helps to scan the environment regularly which then assists in helping the business to formulate its course of action.

Very often the strategy of an organization is confused with that of a long term plan for the day to day operations of the firm. However, strategy is not an operational plan, it is a long term plan for the overall direction of the firm at large and goes a long way in deciding upon the standing as well as the positioning a firm. Porter (1996), believed that a strategy decides upon the future of the firm by taking into consideration the present scenario of the firm and the external factors lying outside the firm. According to Zott and Amit (2013), strategy is often considered to be a path which leads to a better version of the firm but often confused as a general plan of action. A general plan of action is concerned with the immediate time period but a strategic plan like that of a generic strategy of focus or cost differentiation has connections with the future of the organization. For instance, hiring the employees can be a plan of action, but training them to be of long term use to the firm can be taken as strategy.

As stated above, a plan of action is quite different from a strategy, however, very often the different members as present in the firm miss out upon the critical aspects of the strategy which need to be made (Peng, Wang and Jiang 2008). Given in the following section, re certain critical assumptions or elements which are crucial to the success of the firm in lieu of a strategy:

The people: The different people often form the key aspect of the organization. Very often the different authors and members of the firm are under the belief that the strategic planning and formulation of the generic strategy is with respect to the leadership of the firm but this is not the case always and the overall workforce needs to be involved in the strategy making.

The communication: According to Peng, Wang and Jiang (2008), a strategy cannot be a success without communication. Hence, it is for this reason, that the communication of the strategy for the overall welfare of the firm must be taken seriously which will then assist in ensuring that the organizations are able to attain success. If it’s only the upper management who is aware of the strategy, the strategy will not work.

The strategic direction: Any strategy must possess a clarity of the different directions which it will take as this helps in ensuring that the organization has a goal. If the strategy lacks a direction then, the plan may fallout.   Moreover, all the members of the firm need to be informed about the strategic direction.

The measurement aspect: The measurement aspect refers to the fact that a strategy will not workout successfully if the goals set for the firm are not measurable in nature (Peng, Wang and Jiang 2008). This means that the goals h organization has set for itself need to be measured to ensure success.

The alignment: According to Porter (1979), one of the most critical aspects of the organization is that the strategy of the firm must align with the overall welfare of the firm. This means that, if the firm wants to take the generic strategy of for instance, cost leadership like that of the southwest airlines, then it needs to ensure that its resources and operations are aligned in a manner similar to that.

After the analysis of the theory available in this aspect, it can be rightfully stated that strategy forms an essential part of any workplace and in order to ensure long term success, a firm needs to ensure that they are able to make use of the right strategy for the right situation. A few companies with one of the most successful strategies can be stated to be companies like Coca cola, Apple, Colgate, Starbucks, and Nike among others (Johnson 2016). These major companies have been successfully implementing various generic strategies for their advantage and ensuring that the different operations are able to attract the audience. By making use of the differentiator strategy, Apple is being able to ensure that it can sell at a higher price and thereby attain a larger market share. Additionally, Starbucks has followed a Focused differentiation strategy to ensure that it is able to build a strong brand for itself. One more example, for a good business strategy can be taken up for Airbnb which followed a focused differentiation strategy and gained a good market positioning.  Moreover other strategies used by a company called PayPal reflect how differentiation helps in improving the firm`s overall performance

Conclusion 

Therefore, it can be stated that the business strategy forms an essential part of a firm/s success.  A strategy sets the scope for the overall success of the firm and also helps in setting the direction of the firm for its future path and helps in the assessment of the different goals and objectives a firm is required to follows. The concept of strategy developed from 1950s where strategy was taken to be a general plan of action, but over the time, this aspect about the strategy has changed considerably and now strategy is primarily concerned with the formation of creativity and innovation plans. After critically analyzing the different journals and text books during the review, it could be understood that the strategy which needs to be adopted by the organization needs to follow various critical assumptions and involve a large number of people from the firm as well which helps in alignment and allocation of the resources. Moreover, it was also learnt that any strategy must have one main focus and that it should have a measurable aspect which makes monitoring easy. Although different journals gave different relevance to the strategy models, it was agreed by all that the Porters strategic knowledge is one of the most valuable contributions to the field and that the generic strategy which has been analyzed in the paper forms the key basis for various organizations and also contributes to their success.

References

Alkhafaji, A. and Nelson, R.A., 2013. Strategic management: formulation, implementation, and control in a dynamic environment. Routledge.

Ansoff, H.I., 1965. Corporate strategy: An analytic approach to business policy for growth and expansion. McGraw-Hill Companies.

Barney, J.B., 1986. Strategic factor markets: Expectations, luck, and business strategy. Management science, 32(10), pp.1231-1241.

Barney, J.B., 2014. Gaining and sustaining competitive advantage. Pearson higher ed.

Bettis, R., Gambardella, A., Helfat, C. and Mitchell, W., 2014. Quantitative empirical analysis in strategic management. Strategic Management Journal, 35(7), pp.949-953.

Bryce, H.J., 2017. Financial and strategic management for nonprofit organizations. Walter de Gruyter GmbH & Co KG.

Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management. Sage.

Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press, USA.

Gereffi, G. and Fernandez-Stark, K., 2016. Global value chain analysis: a primer.

Ghemawat, P., Cassiman, B., Collis, D.J. and Rivkin, J.W., 2010. Strategy and the business landscape. Upper Saddle River, NJ: Pearson.

Ginter, P.M., Duncan, J. and Swayne, L.E., 2018. The Strategic Management of Healthcare Organizations. John Wiley & Sons.

Hax, A.C. and Majluf, N.S., 1996. The strategy concept and process: a pragmatic approach (Vol. 2, pp. 360-375). Upper Saddle River, NJ: Prentice Hall.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Jarzabkowski, P. and Kaplan, S., 2015. Strategy tools?in?use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), pp.537-558.

Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.

Kalkan, A. and Bozkurt, Ö.Ç., 2013. The choice and use of strategic planning tools and techniques in Turkish SMEs according to attitudes of executives. Procedia-Social and Behavioral Sciences, 99, pp.1016-1025.

Lasserre, P., 2017. Global strategic management. Palgrave.

Lee, T. and Porter, M., 2013. The strategy that will fix healthcare. Harvard business review.

Martinsuo, M., 2013. Project portfolio management in practice and in context. International Journal of Project Management, 31(6), pp.794-803.

Merat, A. and Bo, D., 2013. Strategic analysis of knowledge firms: The links between knowledge management and leadership. Journal of Knowledge Management, 17(1), pp.3-15.

Mintzberg, H., 1987. The strategy concept I: Five Ps for strategy. California management review, 30(1), pp.11-24.

Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management (pp. 978-3658078836). Springer.

Moutinho, L. and Vargas-Sanchez, A. eds., 2018. Strategic Management in Tourism, CABI Tourism Texts. Cabi.

Olins, W., 1990. Corporate identity: Making business strategy visible through design. Harvard Business School Pr.

Peng, M.W., Wang, D.Y. and Jiang, Y., 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of international business studies, 39(5), pp.920-936.

Porter, M.E. and Michael; ilustraciones Gibbs, 2001. Strategy and the Internet.

Porter, M.E., 1979. How competitive forces shape strategy. Strategic Planning: Readings, pp.102-117.

Porter, M.E., 1989. From competitive advantage to corporate strategy. In Readings in strategic management (pp. 234-255). Palgrave, London.

Porter, M.E., 1989. How competitive forces shape strategy. In Readings in strategic management (pp. 133-143). Palgrave, London.

Porter, M.E., 1996. What is strategy. Published November.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Scholes, M.S., 2015. Taxes and business strategy. Prentice Hall.

Slack, N., 2015. Operations strategy. John Wiley & Sons, Ltd.

Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.

Team, F.M.E., 2013. PESTLE Analysis. Strategy Skills. Free management ebooks, p.15.

Teece, D.J., 2010. Business models, business strategy and innovation. Long range planning, 43(2-3), pp.172-194.

Vogel, R. and Güttel, W.H., 2013. The dynamic capability view in strategic management: A bibliometric review. International Journal of Management Reviews, 15(4), pp.426-446.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.

Whittington, R., 2001. What is strategy-and does it matter?. Cengage Learning EMEA.

Williamson, D., Cooke, P., Jenkins, W. and Moreton, K.M., 2013. Strategic management and business analysis. Routledge.

Wright, R.P., Paroutis, S.E. and Blettner, D.P., 2013. How useful are the strategic tools we teach in business schools?. Journal of Management Studies, 50(1), pp.92-125.

Zott, C. and Amit, R., 2013. The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), pp.403-411.