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1
Once Upon a Time …
introduction
Not only is the book very short, fairly interesting and reasonably cheap, but it is also quite comprehensive. In these pages we will provide an overview of what has become one of the most influential fields of management: strategy.
We begin in this chapter with an overview of strategy, discussing some of its auspices and influences, and identify some of the key issues: where strategy comes from; how it operates; it’s relation to competition; and why there are so many definitions of what the key terms mean.
the ubiquitousness of strategy
Strategy is everywhere. Soccer teams have strategies, as do political parties, and, more personally, people have strategies for making themselves available when they desire to create an interest in someone – and they usually have strategies for handling the inevitable rebuttals that ensue. And of course, organizations have strategies – or they are supposed to. In management and organization theory, the contemporary focus on strategy reflects significant changes in the corporate environment that have occurred in recent decades. Strategy is cast as the main job of executives in organizations, transcending the mere operational detail of finance, human resources, marketing, etc. Our colleague Stefano Harney (2007), who teaches strategy at the University of London, has characterized strategy as the queen of the management sciences, the sovereign subject. Like us, he thinks that it is time to explore the legitimacy of its claims to sovereignty.
As students of management, it is important to be able to read and understand the language of strategy. Especially if you are an ambitious student of management! The reason is simple: strategy occupies the commanding heights of the organization and if you aim to reach for the top this is where you will want to be.
So what is strategy? While many read the discourse of strategy as something stretching back into ancient history, strategy has an interesting duality. The idea of strategy can be traced back to time immemorial and often is: in the work of Sun Tzu, for instance, whose early writings on military strategy in The Art of War are often said to be the birth of the discipline, and are available today in various versions and translations which sustain many pages of product at Amazon.com. Sun Tzu is merely the most ancient of a long line of putative predecessors that number in their ranks the Florentine political philosopher, Niccolò Machiavelli and the Prussian general, Carl von Clausewitz. If strategy is not traced to some long-dead Chinese mandarin, Florentine diplomat or Prussian general, it is often traced to some long-dead Greek philosopher. One of the ways that academic areas seek to accrue legitimacy is through creating such genealogies. The judicious choice of ancestors is an old marketing trick. The idea that strategy may be traced in a seamless continuity of development from the ancient Greeks 500 years before the birth of Christ to the current day is patently absurd. Machiavelli and Clausewitz did strategize, but in a very different context and with different objectives in mind. There is no straightforward linear history of accumulated and progressive building of a coherent body of knowledge. In fact, whatever coherence there is, it is very much an attempt at retrospective sensemaking, an attempt to construct a legitimate intellectual pedigree for a body of knowledge that is an intellectual mongrel. Taking history a bit more seriously, we’ll see how strategy changes and develops. As a conscious management discourse, strategy is a relatively recent phenomenon (with, of course, a grand teleology now invented for it!). Essentially, it is a post-Second World War, largely US invention, with undoubted roots in military thinking.
The influence of military planning on strategy cannot be emphasized enough, which is not surprising. The military has been a great source of strategic lessons, from the outset of the field. Keith Hoskin and Richard MacVe (1986, 1988), for instance, have highlighted the way in which strategy as a discipline emerged from military ideas. In the late nineteenth and twentieth centuries American corporations grew inexorably larger and as a consequence needed to develop new means of managing. Ideas and models were borrowed from military planners.
Armies were the first rapidly moving organizations that faced an enemy which threatened them. As organizations grew bigger and competition becomes fiercer, military strategy was seen as an appropriate backdrop for talk and action in corporate boardrooms. The macho talk also suited the identities of many strategists in large corporations, who were happy to imagine themselves as warriors or field marshals directing a war. War with competitors, battles for mind- and market-share and the quest for domination evolved and shaped these conversations that are labelled ‘strategic’.
War teaches Strategy. The Battle of Cannae in 216BC was a classic case of how a double envelopment/encirclement by Hannibal allowed him to beat a Roman Army of almost twice the size. In December 1805 Napoleon’s greatest victory, at Austerlitz, was made with the ‘Lion Leap’, a flanking attack through the morning fog by the fourth corps, led by Nicolas Soult. These strategies and tactics are still taught at Sandhurst and West Point as a way of managing large static armies. They worked well until the 1914–18 war, when it was found that a couple of strategically placed machine guns could hold up foot soldiers on the move. Fully mechanized war did change the way generals thought, but it took time for their strategy to change in accordance with the new realities of technological warfare. Nowhere was this more evident than in the Battle of the Somme, a battle best remembered for its first day, 1 July 1916, on which the British suffered 57,470 casualties, including 19,240 dead – the bloodiest day in the history of the British Army. The British artillery was too light, too distant from the target, and the German fortifications were too sophisticated for much damage to be sustained by the prior bombardments that were supposed to have destroyed the German resolve. As the troops advanced, at a walking pace, they were simply mown down by the German machine guns. Those 57,470 casualties were a lesson in the inappropriateness of the strategy pursued, but it was not until the closing stages of the war, and the lessons of antipodean officers such as General Monash, that skilful planning and attention to detail led to the development of more effective strategies.
Interestingly, elsewhere in the British Empire, rebel fighters such as Michael Collins in Ireland were showing themselves adept at military strategy. Lloyd George, the then British Prime Minister, lamented that his home grown generals – later dubbed as donkeys – had none of the military wit or imagination of Collins. The Allied generals thought only of attrition until the Spring Offensive in 1918 when the Germans adopted Storm Trooper tactics, which enabled them to burst through the lines but, in the end, they found that they had advanced too far because they had outrun their own supply lines. The Germans learned from this in the Second World War but, by this time, they enjoyed the great advances of air power and the tank technology, with which to implement Blitzkrieg successfully.
Strategy, not only in war but in business, is driven by technology which can wipe out or reduce competition. While the days of finance-led businesses are not over, there is a huge challenge being driven by technology as a vast amount of business is done over the Web. A firm must now have an IT strategy, something that does not always sit well with older members of a Board, who know it is essential but fear it because it can inhibit their power and decision-making if they don’t understand its ramifications.
It is perhaps not surprising that military metaphors are commonplace in the strategy literature, given its historical origins and the way in which these have been used to account for it in contemporary terms. While the preoccupation with war is understandable, we argue that it is in need of revision. There is nothing heroic or glorious about war, as any old soldier will tell you – a cursory look at current events in Iraq being a sobering instance of its folly. Of course, it was a commitment to the metaphors of war, of ‘shock and awe’, that talked the US government into Iraq in the first place.
competition entails strategy
While in the dim and distant past organizations might have pursued strategies, these were not articulated through the contemporary discourse of strategy, which, above all, emerged from organizations having to deal with issues of competition. If there was no competition, there would be no need for strategy. Where there is only a monopoly provider, then the monopolist is able to sell or distribute whatever quality of goods it wishes, without regard for strategy, because, if people want what it provides, they have to accept what is on offer. Competition immediately changes the picture. Porter, one of the most influential voices in strategy, actually based his book on competitive strategy on how to get closer to a monopolistic competition by taking the viewpoint of the firm (Porter, 1980).
Competition is the key: wherever similar products are sold in the same market there will be competition. Firms that thrive competitively develop strategy as an account of how they are doing what they do and what they are proposing to do. Where competitors sell largely undifferentiated products at similar prices, then it is imperative to be able to position specific products as having a specific difference. Think of The Hard Rock Café restaurants in the USA and elsewhere. The value proposition is the same old fast-food laden with fats and cholesterol but – wait for it – there are guitars and other instruments once used by long-gone musicians on the wall: fast food + nostalgia and a strange sense of community.
The competitive picture is brought into sharper focus where the market is not just for simple burgers and processed food and drinks, but is highly uncertain and rapidly changing. In a corporate environment that has become increasingly dynamic and complex, strategy is management’s response to turbulence.
There is, however, a paradox of competition: the larger the organization, the less competition it is likely to encounter. Therefore, it might be that the organization’s strategy, while shrouded in rhetoric about competition, is in fact seeking to avoid competitors. A good example of this would be the Scottish Banking sector which, until comparatively recently, saw a great deal of collusion between the different ‘competitors’. The banks paid the same interest rates on deposit accounts, all agreed not to pay interest rates on current accounts, and did not attempt to poach either staff or customers from ‘competitors’. While the financial services industry has undoubtedly changed, it is important to be aware that competition is not always what it seems. For instance, JJB sports, a large sports retailer, were fined £6.7 million by the Office of Fair Trading for price-fixing the cost of England and Manchester United football shirts between 2000 and 2001. Six other firms with whom they colluded were also fined. As the Office of Fair Trading put it, ‘The Office of Fair Trading considers that agreements between undertakings that fix prices are among the most serious infringements of the Competition Act 1998’ (http://www.oft.gov.uk/advice_and_resources/
resource_base/ca98/decisions/football-kit). At the time of writing, British Airways has just been fined a record £270 million for price-fixing its fuel surcharges on its transatlantic flights with Virgin Atlantic. In Australia, the countries third wealthiest billionaire, Richard Pratt, who owns Visy, the world’s largest privately owned paper and cardboard manufacturer, has recently been charged in a cardboard box price-fixing scandal with competitors Amcor. So, strategy, at its most effective, from a short-term perspective, may well entail illegal activity. Few strategists, we suspect, are likely to recommend criminal activity to their readers, however effective it might be as a strategic gambit, but obviously, given these cases, some strategists do recommend such action!
Strategy is supposed to lead an organization through changes and shifts to secure its future growth and sustainable success. Without a clear strategy, organizations will drift, much as might a small yacht, disabled, without sails or rudder, on a storm-tossed sea. No steering capacity will be evident. Organizations in this respect are somewhat like governments: they steer not the ship of state but the fortunes of all those life chances, income and profits and losses, which are tied up in their good management. Just as, from time to time, governments appear rudderless, so do some organizations. For instance, one of the criticisms of John Major’s government between 1990 and 1997 in the UK was that it lacked any strategic direction but just lurched from one crisis to the next. Before its recent renaissance the same things were being said about the doyenne of British retailers, Marks & Spencers (M&S), but then Stuart Rose reset its strategic direction by developing boutique brands within the general umbrella of M&S and hiring celebrity models for its marketing, such as Twiggy, Bryan Ferry and Take That.
As we mentioned earlier in this chapter, as a language game, strategy is everywhere. Corporations, politicians and sports teams talk of strategy. So do public sector organizations. One of the interesting developments in government organizations over the last twenty years has been the rise of ‘New Public Management’. Broadly speaking, this has seen the incorporation of private sector ‘managerialist’ policies into the state sector. This change in rationality helps explain why a ‘hospital patient’ has become a ‘customer’, or a train passenger has become a ‘customer’. Some universities even encourage their staff to see students as customers. The ushering in of managerialism to the public sector has fuelled the growth of strategy-making in government organizations. Organizations such as hospitals, schools and councils spend inordinate amounts of effort making strategy. They articulate their strategies through private sector strategy terminology. But of course, they do not exist in markets or have competitors, although increasingly they are subject to being ranked in league tables, which have the effect of a market. An executive in a hospital might therefore spend a lot of time plotting ways to improve its ranking in a league table (Mueller et al., 2003). Mike Power (1997) has referred to the whole move towards league tables as being about the rise of the audit society. Now you see why it’s hardly surprising that strategic management is increasingly understood as the task of top management. To be able to say ‘I set strategy’ has great cachet. It marks out the top managers from the also-rans.
The story of strategy is very much the story of our times. There is a complex interplay between hope and fear. It is exciting but also fraught with danger; as Stefano Harney (2007) suggests, the emergence of the discourse of strategy is a key symptom signifying that all is not well with management. What he means is that business – for all its ingenuity – to the extent that it is premised on metaphors of war, will always comprise more losers than winners, as there only ever can be one winner while there can be many losers. Strategy offers an opening or a way for managers to appear to be doing something to win. In the end it matters little if the strategy succeeds or fails. What matters is that they have a strategy with which the realities of ‘success’ and ‘failure’ can be accounted. In a similar vein, Keith Hoskin (2007) has noted that a lot of the language associated with strategy is ebullient, hopeful and death-defying whereas the stories from practitioners are far more fragmented and are tales of woe, pointlessness and despair. Strategy is a discourse that is useful for papering over the fearsome cracks in a firm’s rationality, for it holds the manager and the firm to account.
defining strategy
Scholars have complained that ‘strategy has become a catchall term used to mean whatever one wants it to mean’ (Hambrick and Fredrickson, 2001: 49). We agree that there is a certain vagueness associated with the notion of strategy, but also note that, to date, the imagination of strategy researchers has been rather limited. Most researchers in the field use definitions that are as little different from each other as the products of the business schools they sit in.
Etymologically, the word ‘strategy’ derives from ancient Greek and consists of two parts: stratos meaning army, and agein meaning to lead (Cummings, 2003). Cummings argues that the term ‘strategy’ became important once warfare developed a certain complexity and forced commanders to coordinate relatively large sea and land forces. As we have seen above, it is only a short step from the world of military competition to the world of competing businesses. The word started to gain traction in the world of business in the 1950s as many executives with military experience in the Second World War sought to apply the long-range planning, characterizing events such as the Normandy Landings, to their business. The first authors who developed the notion of strategy into a more consistent business concept were titans of industry, such as Chester Barnard from AT&T, Alfred Sloan from General Motors and Alfred Dupont Chandler, the business historian, also related to the DuPont Chemicals family.
There are almost as many definitions of strategy as there are strategists. Why this should be so is obvious: it’s good strategy for strategists as they all seek to position the field around their intellectual capital. It is not just a question of intellectual ego, either; strategy is big business, with a considerable capacity for consultancy earnings in the stratosphere if you find the gold at the end of the strategy rainbow. Ask Michael Porter. Let’s look at some of the most commonly used definitions:
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