THE CONCEPT OF STRATEGY

The concept of strategy is believed to have originated from ancient Greek word

„stratego” meaning to plan the destruction of one‟s enemy through effective use of resources (Burnes, 2004:56). The concept has since found universal application beyond the military. Johnson and Scholes (2006:146) views the emergence of strategy in civilian organisations to have resulted from an awareness of opportunities and needs created by changing populations, incomes and technology to employ existing or expanding resources more profitably.

Mintzberg, Lampel, Quinn and Ghoshal (2003:54) defined strategy as rules for guidance of organisational behaviour. The implication of this view is that an organisation is supposed to interact with the environment according to some predetermined pattern. Hax and Majluf (1991:258) view strategy as a fundamental framework through which an organisation can assert its vital continuity, while at the same time facilitating its adoption to changing environment. A strategy can also be referred to a plan of action designed to achieve a particular goal (Robbins, 2003:204). According to Pearce and Robinson (2005:66), a strategy is a large-scale, future-orientated plan for interacting with the competitive environment to achieve organisational objectives. Johnson and Scholes (2006:152) define strategy as the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.

A strategy maximises competitive advantage and minimises competitive disadvantage (Hunger & Wheelen, 2008:5). Olson, Slater & Hult (2006:1221) assert that an organisation has a competitive advantage when it has a strategy that increases effectiveness or efficiency, and is valuable, rare and difficult to imitate. A strategy is rare when it is not pursued by a large number of organisations. Thatcher,

43 Foster and Zhu (2006:94) emphasise that the business strategy of an organisation is a critical factor in its performance.

Despite the lack of agreement in terms of what strategy is, there is a broad appreciation of the fact that strategy can be viewed as either the process or the contents (Mintzberg 2007:70). Process deals with how strategies develop in organisations while content deals with what constitutes a winning strategy.

In every organisation, there are two independent and simultaneous processes through which strategy comes to be defined. The first strategy-making process is conscious and analytical, involving assessments of market structure, competitive strengths and weaknesses, the nature of customer needs, and the drivers of market growth. Strategy in this process typically is formulated in a project with a discrete beginning and end. The result of this process is an intended or deliberate strategy.

Intended strategies can be implemented as they have been envisioned if three conditions are met. First, those in the organisation must understand each important detail in management‟s intended strategy. Second, if the organisation is to take collective action, the strategy needs to make as much sense to each of the members in the organization as they view the world from their own context, as it does to top management. Finally, the collective intentions must be realized with little unanticipated influence from outside political, technological or market forces. Since it is difficult to find a situation where all three of these conditions apply, it is rare that an intended strategy can be implemented without significant alteration. (Mintzberg &

Quinn, 2007:188).

The second strategy-making process has been termed emergent strategy. It is the cumulative effect of day-to-day prioritization decisions made by managers – decisions that are made despite, or in the absence of, intentions. (Mintzberg, 2007:75). In fact, managers typically do not frame these decisions as strategic at all, at the time they are being made; they have a decidedly tactical character. Emergent strategies result from managers‟ daily response to problems or opportunities that were unforeseen by those engaged in the deliberate strategy-making process, at the time they were doing their analysis and planning. Strategies in organisations cannot

44 be viewed purely as planned or purely emergent. In reality, strategies are a mix of both planning and emergence.

A business strategy protects and extends existing markets, reaching new markets, or gaining advantage over competitors (Hunger & Wheelen, 2008:5). Furthermore, a business strategy is central to reducing operating expenses, increasing transactions, or developing new markets. Such a strategy must also have at its forefront mechanisms of managing the most critical assets of organisations, namely human resources (HR).To be valuable, the organisation creates strategies that increase its effectiveness and efficiency. The foundation of strategy formulation comprises a vision, mission, goals, situation analysis and evaluation of alternatives (Slater, Olsen

& Hult, 2006:1221). Dollinger (2006:117) and Hunger and Wheelen (2008:5) state that a strategy exists on different levels within an organisation, and includes corporate, business and functional strategies. In the next section, corporate strategy is discussed.

3.2.1 Corporate level strategy

Dollinger (2006:117) considers a corporate strategy as one that identifies the set of products and services, markets or organisations in which the organisation competes, and the distribution of resources among those organisations. A corporate strategy can be viewed in four perspectives, asdescribed in Table 3.1.

Table 3.1: Corporate strategy alternatives

Corporate strategy options Description

Concentration Focuses on a single organisation competing in a single sector

Vertical integration Involves expanding the domain of the institution into supply channels or agents

Concentric diversification Involves moving into new organisations that are related to the institution‟s original core business

Conglomerate diversification Involves expansion into unrelated organisations

Adapted from: Bateman & Snell (2002:125)

These strategies are pursued from a wider perspective at institutional level to gain dominance in the sector, fight competition and take advantage of the organisation‟s

45 strengths, or to expand to new organisations. Strategies are also formulated at an organisation‟s business level. The next section presents business level strategy.

3.2.2 Business level strategy

Business strategies are the major actions by which organisations build and strengthen their competitive position in the marketplace. According to Hellriegel et al.

(2012:232), a competitive advantage results from one of three generic business strategies, namely:

low-cost used to build a competitive advantage by being efficient and offering a standard product, taking advantage of economies of scale in production and distribution;

differentiation business strategy where the organisation attempts to be unique based on high product or service quality, excellent marketing, or superior service in the sector or market segme;

focus strategy is used when operating in a niche market.

A focus strategy can be a focused-cost or differentiation strategy. Business strategies support corporate strategies for an organisation‟s survival, growth, development and prosperity. (Bateman & Snell, 2002:126). Likewise, business strategies are to be supported by functional strategies in terms of resources. In the next section, functional strategies are discussed.

3.2.3 Functional level strategy

Functional strategies are implemented by each functional area of the organisation to support the business strategy (Bateman & Snell, 2002:127). The typical functional areas include production, HR, marketing, research and development and finance.

Bateman and Snell (2002:129) emphasise that managers review the functional strategies to ensure that each major department operates in line with business strategies of the organisation. Nhlanhla (2005:226) maintains that a strategy-focused organisation uses a strategy to create value for its stakeholders, consistent with its mission, in which context strategy describes how an organisation intends to create that value.

46 The next section discusses the concept of strategic management in detail.