Chapter 2: The Strategy Piece

 All managers must start with the same four pieces: strategy, information technology, structure, and leadership.  Organizations differ not according to the number of pieces they choose to use in completing their specific puzzle, but as a result of the different shapes of the pieces they choose.  Solving the management puzzle, consists of: ◦ Examining the available pieces and selecting those which will both interlock effectively ◦ Presenting a harmonious and well-composed picture to the outside world, ◦ Fill the specific frame with which their environment presents them.  Traditional business design always start with strategy. Next came a structure to support the strategy and, finally, new management and IT systems to make the structure work.  Today, designing a business requires non-linear thinking that can start with any one of the four pieces and then proceed in a dynamic, interactive, and continually evolving fashion.

 A competitive strategy is an approach to doing business. At its highest level, a strategy specifies an organization’s mission, vision, and goals.  Approaches to strategy formulation and implementation are: ◦ strategy as positioning – outward looking - ability to assess one’s environment and in exploiting it in the best possible way, sometimes by transforming it ◦ strategy as capabilities – inward looking - assessing one’s environment followed by building one’s capabilities in order to stay ahead of the competition. ◦ governance issues- what should the boundaries of the firm be etc. - how transactions are allocated among various institutional arrangements and firms.  Harvard tradition of strategy formulation - “SWOT” model  Porter 5 Forces Analysis

 Positioning might be too simple to be solution to the strategy formulation process.  Capabilities need to be develop and focus on the core business of the enterprise  Firm as a bundle of assets and the strategic advantage as the capacity to deploy those assets.  The core competencies are defined as the competencies that are unique to the organization, hard to replicate, and central to the organization’s mission.  The more difficult it is for competitors to imitate and copy one’s strategy, to replicate one’s competencies, the more sustainable is one’s competitive advantage.

 History, the combination of past decisions and luck/serendipity, plays a major role in defining a firm’s profile.  Organizational learning refers to that knowhow which results from the interactions of the individual within the firm, and which is often tacit in nature.  Ability of organization to adapt effectively to current environmental conditions, enable a company to create a stream of short-term advantages in such areas of new products, new market segments, new marketing channels, and new customer relationships.  The careful positioning of the past must be replaced by a more dynamic and disorganized approach which emphasizes continuous strategy making over time throughout the entire organization.

 The roots of this new perspective on strategy can be found in firms’ improved information processing capabilities.  Organizations are set up to minimize the costs of executing certain forms of transactions.  to be successful, a firm must deliver better value at a lower price than the marketplace.  To do this, companies will have to focus on what they do well, develop core competencies in these areas, and form partnerships and alliances to deliver the rest.  With Internet, the costs of using the market have been dramatically reduced. This creates opportunities for firms and entrepreneurs who will dismember and rearrange transactions in the most economical way.  Strategizing also consists in reshaping organizations, seeking new ways, processes, and organizational structures to deliver better business propositions to ever demanding consumers.

 The rapid developments in IT are reshaping markets and challenging existing governance structures.  Most researchers suggest that IT strategy should result from business strategy, there is a growing body of evidence and thought that this is not always the case.  With the ability of IT to create and enhance new organizational capabilities and to create new products and services which can lead to a repositioning of a firm in one or more marketplaces, IT has become more than a passive technology.  Therefore, strategy as governance implies rethinking the organizations’ traditional boundaries and interfaces. It is strategy in the long run: an effort to provide definitions of “who we are” and “what we do”

 The three perspectives on strategy– stress the need to maximize the coherence between a company’s external strategy and its internal execution.  Companies, must design an internal business strategy, which complements external strategy, and forms a focused and integrated system.  The new environment poses enormous challenges to managers in managing the process of strategy formulation and implementation.