Understanding Strategy sets out a theory of strategy based on four factors: what it is, the forces that shape it, the processes that form it, and the mechanisms it relies on to take effect. The book presents a uniquely clear, specific conception of strategy, making it possible to analyze and compare the strategies of businesses, non-profits, unions, social clubs, administrative or political branches of governments, or even individual people. The explanation is supported by actual analyses of ten real—but anonymous—organizations.
A directionless company has the direction of nowhere. "Understanding Strategy" is a discussion of business strategy from Geoffrey Chamberlain ... Stating that having a vision, a strategy, and a plan to get where the company hopes to go is what can make or break both the best and worst companies, he offers much insight for one to give direction to their own companies. "Understanding Strategy" is a thoughtful take on business leadership, highly recommended.
Midwest Book Review, Oregon, Wisconsin USA, October 8, 2010
The underlying premise of this book is that we often need to understand where some entity is going, and what path it will follow – in other words, its strategy. The uses of being able to analyze and understand strategy seem obvious. It can facilitate internal discussions between boards and chief executive officers (CEOs), and between CEOs and top teams. It can help insiders understand the context of their work, and let outsiders assess an organization’s prospects. It can enable an organization’s competitors to be more successful when game-playing with it, and allow its suppliers and customers to improve the outcomes of their dealings with it.
My objective is to help readers understand any organization’s strategy, and how it came to be adopted. Neither of these two matters—known as strategy content and strategy process[i]—can be truly understood without also understanding the other. There are two main reasons for this linkage. The first is reliability of perception; by knowing not just what, but also why and how, we gain the ability to make cross-checks on the validity of each point we think we understand. The second reason is improved predictive value; we are usually less interested in what the strategy is, than we are in what the organization will do next—which depends on how the strategist will interpret the strategy, and whether it will be modified or replaced. If we comprehend not only each aspect of the strategy, but also how the strategist thinks, how each aspect came into existence, and how these aspects are intended to take effect, there is some genuine depth to our perception; we have a multidimensional appreciation instead of just a flat-screen interpretation.
We could answer the what, why, and how questions about strategy by using a traditional case-study approach and describing the important aspects of the situation in detail. These reports do not enable us, though, to compare the strategies of different organizations.[ii] We can make such comparisons much more easily if we identify the key features that characterize strategy, develop typologies for each, and carry out standardized analyses on the organizations of interest to us. We can then use the results to fit any organization into a context, giving us both a deeper perception and a better basis for predicting what it may do next. To acquire this capability we have to focus on how strategy works—and in particular on what shapes it, and what it fundamentally is. These matters are the subjects of the next two chapters. Each of the nine chapters that follow those two theory chapters analyzes the actual strategy of a real (but anonymous) organization.
Strategy is a social construct. Some other examples are thought, emotion, society, and law. Social constructs have no physically-demonstrable content and, therefore, mean whatever their users decide they should mean. If the concept definition is vague—as it usually is—there will be difficulties in building clear models or carrying out clear analyses. The strategy construct is a good example of the effects of lack of concept clarity. Users of the term commonly lack a specific view of what they mean by it, and often apply it to everything from broad-but-vague organizational sloganeering, to the almost-trivial.[iii] The professional literature on strategy is similarly eclectic, and cannot even be characterized, except in terms of a number of individual streams.[iv] Fortunately, the original foundational literature is rather more focused, and I will show in Chapter 3 that most of the influential definitions of strategy tend to be aligned with the direction-and-path concept.
The purpose of this book can only be satisfied by developing and applying a conception of strategy that is clear, specific, suited to modeling and analysis, and compatible with important sections of the strategy literature. The conception adopted in the book is derived and explained in Chapter 3. It is—by necessity—far more specific than any of those used by major literature branches, but its specificity is largely restricted to arbitrary structural rules that do not rely on any particular theory of how strategy is formed or takes effect. The book should, therefore, be applicable to analyzing any actual strategy, whether for an organization (business, government, military, religious, charitable, union, or social) or an individual person. However, for simplicity of expression, I will sometimes use business terms and leave readers to translate them appropriately for other applications.
A clear and specific strategy concept helps us analyze and understand real-world strategies, but does not constitute a set of instructions for forming them. In my experience, the people responsible for organizations’ strategies often have no clearer conception of what the word means than other people do, but they are nevertheless often successful as strategists; being unable to describe an abstract concept does not always keep us from making constructive use of it. However having access to a clear concept and effective analytical tools can offer four practical benefits to strategists. First, it can enable them to recognize their own underlying assumptions and biases. Second, it can help them test the coherence of their strategies. Third, it can assist them in explaining their intentions to others, such as boards, investors, and financiers. Fourth, it can make them aware of how the final, implemented strategy differs from their conscious intentions, and how those differences arose.
This book is intended to assist not just strategists, but also anyone else who requires the ability to comprehend, explain, discuss, or criticize the coherence of an existing or proposed strategy. CEOs, board members, managers, and ambitious employees may want to apply this to their own organizations. Commentators, investors, members, and others may want to apply it to organizations of interest to them.
The book is structured to develop the theory first, and apply it to actual case studies in subsequent chapters. However, to make it easier to follow the theory development, I have taken one of the ten case studies and used it as an example. The case—which I have called Alpha—will be described in this introductory chapter. In Chapters 2 and 3, as each section of the theory of strategy is developed, I will illustrate it by analyzing the corresponding aspect of the Alpha case. In all of the ten cases to be analyzed (including Alpha), the study-period is divided into two phases, with a substantial shift in the firm’s strategic situation between the first and second. The second phase always ends at the time of the case study report.
The Alpha case concerns a man who worked in a high volume metal machining industry. This was a third tier supplier industry. It sold small, machined components to complex-component producers: a second tier industry. The complex-component producers assembled the parts they purchased to make complex components, which they sold to a first tier industry: finished goods producers such as automobile manufacturers. After fifteen years as an employee, the man decided to establish his own business in the same field. He began on a shoestring by borrowing from a finance company to buy a very small second-hand repetition-lathe, which he set up at home in his garage. His business was viable immediately, and after paying off the finance company, he bought four larger, but rather old and worn, automatic lathes, and operated them simultaneously in his garage. When he was out seeking orders or delivering components, his wife sometimes operated them. Over time he expanded, then developed a specific strategy that was substantially different from those of his competitors. At the time of the case study, twenty-one years after founding the business, he had about forty employees.
There were two phases in Alpha’s strategy development. The first was starting the business. The second, some years later, covered the emergence of a differentiated business strategy.
The CEO’s decision to go into business was driven by three main factors. First, he disagreed with the management approach at the two similar businesses where he had worked. In particular, he strongly disapproved of the long-term “milking” of a business—that is, the majority of its earnings not being reinvested in the business itself. Second, his coworkers seemed unconvinced that he could succeed as a business owner, and he found this attitude galling. Third, he was personally ambitious.
It was evident to him that he would be financially exposed when he started the firm. He had a family and a mortgage, and to get started he had to quit his job and make a two-year commitment to a consumer finance company. At that time, his strategy was simple. First, he needed orders from customers, and his old employer’s customers had assured him that they would give them to him. Second, he believed he could minimize initial risk by doing almost exactly what he knew his competitors were already doing. Third, he would strengthen and expand his business as quickly as possible. As a result of the second point, he started with old, worn machines, such as were usual in his industry at the time. As soon as his financial strength improved, he bought similar machines that were newly factory-refurbished. He could then meet the quality requirements of his customers—while his competitors were still following their traditional practice of hoping for the best and culling defective parts manually when necessary. This technically based conclusion that he could improve on what his competitors were doing was the first sign of his growing self-confidence. While the decision to adopt refurbished machines was not a strategic one—he made it clear it was done for operational reasons—it was the first indication of a practice of going his own way that would become highly evident in the second phase.
Alpha was on its feet and the CEO had some management experience, he was ready
to exercise his own preferences more freely. The consequent revision of
strategy was not due to the passage of time, or because he recognized that his
first-phase strategy had become obsolete. The changes occurred progressively,
but they were triggered by an event: the CEO suddenly had an inspiration.
During a business trip to
While this trend was emerging, he took other steps that also differentiated his company. He found that his customers often needed to shorten their lead time between ordering machined metal components, and receiving them in large quantities. His solution once again was technology-based. He reasoned that if he bought a high technology “wire-cutting” electrical discharge machining center, he could make his job-specific cutting tools in his own factory instead of ordering them from specialist tool-making firms. This would shorten lead time on new product orders by several weeks. It would also improve his reliability as a supplier, since he could produce new cutting tools within half an hour to replace broken ones. In parallel with this, he began approaching customers with alternative designs for their products’ components. He offered the new versions at lower cost but with the same functionality as their own designs.
All of these changes—which cumulatively created a differentiated approach to the market based on superiority in technology and service—were partly the result of his personality. As an ego-driven individual who was enthusiastic about technology, he found this to be a way to make his own skills, decisiveness, and risk-tolerant nature into central features of his business.[v]
[i] See Fahey (1986) and Huff and Reger (1987) for details regarding this traditional distinction in the literature.
[ii] Readers with a background in methodology will be aware that comparing the contents of multiple case studies raises some epistemological issues. I will address this point briefly, and give a reference explaining my solution, in Chapter 3.
[iii] I recall one CEO adding the word “strategic” to the existing names of his various top-team meetings.
[iv] Mintzberg, Ahlstrand and Lampel (1998) offer a potentially useful suggestion as to how the literature can be subdivided into themes to improve its accessibility. I will make use of that approach at times in this book.
[v] Alpha’s strategy involved a higher risk-profile than its competitors’ due to the greater financial exposure caused by the need to pay for expensive machines. Its fixed costs were higher, so the factory had to run consistently at high production volumes. (Fixed costs are those that continue whether or not the company produces anything. Essentially, these are the costs of the factory, management, machinery, tooling, and facilities being there, ready to produce components. It excludes variable costs of production, which are proportional to output, not independent of output.)