Strategic Management: Formulation and Implementation

The Concept Of Business Level-strategies

The concept of competitive business-level strategy is somewhat confusing, as several writers have tried to articulate dimensions of strategy using different labels. Moreover, a number of partial theories or typologies of business strategy have been developed.

Organizational theorists have explored the linkages between environment, organizational and managerial characteristics, and in some cases business performance. The results have come to be called contingency theory (Dill, 1958; Burns and Stalker, 1961; Lawrence and Lorsch, 1969; Lorsch and Morse, 1974). However, the major shortcoming for those interested in strategic management is that obvious this theory does not incorporate a strategy concept.

There has been considerable discussion about the central role strategy should assume in organization theory (Bourgeois and Astley, 1978). As White and Hamermesh (1981) argued, "it is through strategy that the firm interprets its environment and that strategy (should) guide the choice of organization structure" . This interpretive view of strategy would contend that the organization must cope with the demands of its chosen strategy rather than directly with its environment, although the choice of strategy should take into account environmental conditions.

Perhaps the most popular business strategy typologies have been based upon assessing the attractiveness of the industry or competitive environment, and the business's capabilities relative to other competitors. By arranging its portfolio of businesses in a matrix with industry attractiveness on one dimension and business position on the other, multi-business companies could assign each business a strategic mission: divest / harvest, defend / maintain or grow / build.

For example, the portfolio models: BC, GE / McKinsey / Shell with their industry growth / market share matrix (Henderson, 1970), deal with strategy in terms of the relative investment the firm should make in each of its business, depend on its relative position in the industry and the industry's attractiveness. Many variations on this theme are the works: strategies of building, holding and harvesting (Buzzell, Gale, and Sultan, 1975); strategies of explosion, expansion, continuous growth, slip, consolidation and contraction (Wissema, Van der Pol and Messer, 1980); strategies of share increasing, growth, profit and liquidation (Hofer and Schendel, 1978). However, these theories do not more to address the corporate strategy problem - which business should we be in?, than the business strategy problem - how should we compete in this business?

Other typologies are based on products-market evolution stage, and include those of Fox (1973), and Glueck (1980). These show some marketing considerations, in addition to using some of the same variables contained in other typologies.

Structural aspects are the central focus of Burn's and Stalker's (1961) typology, as they are with life cycle theories of Chandler (1962), Scott (1973), Wrigley (1970), Rumelt (1974), and James (1974). More comprehensive typologies have been empirically tested, including those of Galbraith and Schendel (1983) and Miles and Snow (1978).

Miles and Snow identified four types of "organizational" strategies: defender, prospector, analyzer and reactor. These represent strategies, organizational structure and processes that occur together. Unfortunately this typology does not clearly distinguish between strategic choices and organizational choices.

Business strategy deals with two part of the overall question of how a firm should compete in a given business/industry. The first part related to investment decisions among its businesses. The second involves how the firm should integrate its activities in order to optimize these resources. The above-mentioned models do not deal sufficiently with the latter issue of the specifics of the strategy.

Other typologies have been developed that deal exclusively with a business's competitive strategy within an industry. For example, Utterback and Abernathy's (1975 ) strategies of performance maximizing, sales maximizing and costs minimizing; and Porter's three generic strategies(1980).

According to Porter, cost leadership, differentiation and focus are ways businesses deal with the five competitive forces that make up his general model, to create sustainable competitive advantage. He also proposed common organizational attributes that best fit cost leadership and differentiation strategies.

Any attempt to categorize the complex phenomenon of business strategy into a limited number of strategy types will necessarily involve simplification. Fore example, Porter's generic strategies do not correspond directly to other strategy types, like Miles and Snow approaches. But these conceptions are not necessarily mutually exclusive. For example, pursuing a cost leadership strategy does not necessarily preclude building, maintaining or harvesting the business, or prospecting for a new market area.

However, in studying business strategy-organization fit relationships it makes sense to proceed by selecting a simple business strategy concept which incorporates a few critical dimensions. Porter's generic business strategies meet these tests.

Moreover, Porter's applications of mobility barriers, industry analysis, and generic strategies become broadly accepted and used in teaching, consultation, and many research projects. Therefore, a set of generic business strategies based on this conception should be crucial in the organization of the business unit. As Porter goes on to argue:

"Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target."

This view is supported by evidence from companies that have recognized the importance of cost and differentiation as an organizing principle.