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1. Strategic Thinking

A.A. 2017-18
Prof. David D’Angelo
Etimologically, the term “Strategy” comes from Ancient Greek:
στρατηγία (stratēgía, “office of general, command, generalship”)
➢ from στρατηγός (stratēgós, “the leader or commander of an
army, a general”) from
➢στρατός (stratós, “army”)
➢ἄγω (ágō, “I lead, I conduct”)
Some definitions
“Strategy can be defined as the determination of the basic long-term goals
and objectives of an enterprise, and the adoption of courses of action
and the allocation of resources necessary for carrying out those goals”
Chandler, Alfred, Strategy and Structure: Chapters in the history of industrial enterprise,
Doubleday, New York, 1962.
“...broad formula for how a business is going to compete, what its goals
should be, and what policies will be needed to carry out those goals"
and the "...combination of the ends (goals) for which the firm is striving
and the means (policies) by which it is seeking to get there.”
Porter, Michael E. (1980). Competitive Strategy.
… continue …
Henry Mintzberg described five definitions of strategy in 1998:
• Strategy as plan – a directed course of action to achieve an intended set of
goals; similar to the strategic planning concept;
• Strategy as pattern – a consistent pattern of past behaviour, with a
strategy realized over time rather than planned or intended. Where the realized
pattern was different from the intent, he referred to the strategy as emergent;
• Strategy as position – locating brands, products, or companies within the
market, based on the conceptual framework of consumers or other stakeholders; a
strategy determined primarily by factors outside the firm;
• Strategy as ploy – a specific manoeuver intended to outwit a competitor;
• Strategy as perspective – executing strategy based on a "theory of the
business" or natural extension of the mind-set or ideological perspective of the
(Mintzberg, H. Ahlstrand, B. and Lampel, J. Strategy Safari : A Guided Tour Through the Wilds of
Strategic Management, The Free Press, New York, 1998.
Strategies in Game Theory (GT)
A strategy is a complete, contingent plan of action
that specifies a feasible action for each player in every contingency (i.e.
information set) in which the player might be called on to act (regardless of
whether that information set is reached during the game!)
‘STRATEGY’ in the business context
It is with the Second Industrial Revolution (1879 - 1914) that the strategic
terminology came to be adapted to business contexts.
➢ as a way to shape market forces and affect the competitive environment;
➢ along with the emergence of large, vertically-integrated company heavily
investing in manufacturing, marketing and hierarchies to coordinate those
‘STRATEGY’ in the business context
Alfred P. Sloan, the CEO of General Motors from 1923 to 1946, developed a
successful strategy based on what he thought were the strenghts and weaknesses
of his company’s critical competitor (Ford Motor Company)  read article from «The
‘STRATEGY’ in the business context
After WWII (which also represented an event of stimulus for the development of
‘strategic thinking’, intended as the problem of allocating scarce resources across
the entire economy), new techniques using quantitative analysis in formal strategic
planning (e.g. LINEAR PROGRAMMING) were devised.
In 1944, John von Neumann and Oskar Morgenstern published their milestone book
The Theory of Games and Economic Behavior (1944, Princeton)
Wartime experiences (military aircraft industry – ‘learning curve’) encouraged the
use of formal strategic thinking to guide management decisions.
‘STRATEGY’ in the business context
«Management is not just passive, adaptive
behavior; it means taking action to obtain the
desired results come to pass»
Managing «… implies responsibility for
attempting to shape the economic environment,
for planning, initiating, and carrying through
changes in that economic environment, for
constantly pushing back the limitations of
economic circumstances on the enterprise’s
freedom of action»
(Peter Drucker, ‘The practice of
management’, 1954)
‘STRATEGY’ in the business context
By consciously using formal planning,
a company could exert some positive
control over market forces
‘STRATEGIC THINKING’ in business schools
Harvard Business School (1908) was one of the first schools to promote the idea that
managers should be trained to think strategically rather than just act as functional
In 1912, Harvard introduced a required second-year course in «Business Policy» that
was designed to integrate the knowledge from functional areas (accounting,
operations, finance, etc.) with a broader perspective on the strategic problems faced
by corporate executives.
In 1960’s, classroom discussions in business schools began to focus on matching a
company’s «strengths» and «weaknesses» (its distinctive competence) with the
«opportunities» and «threats» that it faced in the marketplace. This framework (now
referred to as SWOT Analysis) represented a major step forward in explicitly bringing
competitive thinking into focus.
‘STRATEGIC THINKING’ in business schools
Always in 1960’s, H. Igor Ansoff (1918-2002), suggested that a company, when
considering to invest in new products, should first ask whether the new product had
a ‘common thread’ with existing products.
He defined the ‘common thread’ as a FIRM’S MISSION, the firm’s
commitment to exploit an existing need in the market as a whole.
To enable firms maintain their strategic
focus, Ansoff suggested four categories
for defining the common thread in its
business strategy.
In the 1960’s and 1970’s
Rise of a number of ‘strategy
consulting practices’.
BCG (1963) among the first to apply
quantitative research to problems of
business and corporate strategy.
BCG developed its own version of the ‘learning
curve’, the EXPERIENCE CURVE (1965), with
the purpose of explaining price and competitive
behaviour in the fastest growing segments of
BCG’s finding was that for each doubling of
cumulated output, total costs would decline
roughly 20% because of:
Economies of scales
Organisational learning
Technological innovation
Strategic implications: the producer who
has made most units should have the
lowest costs and the highest profits.
In the early 1970’s BCG
developed yet another powerful
i.e. the relative potential of a
diversified company’s portfolio of
business units as areas for
investments was compared by
plotting them on a grid.
Strategic implications: maintain a balance
between ‘cash cows’ and ‘stars’ while allocating
some resources to fund ‘question marks’ (potential
stars). ‘Dogs’ are to be sold off.
In 1970 McKinsey, studying
how to best organise the
strategic business units
(SBUs) of GE proposed a
generalisation of the growthshare matrix, known as the
GE/McKinsey nine-block
Industry AttractivenessBusiness Strength Matrix
Strategic implications:
Grow BU’s in the blue area
Hold BU’s in the yellow area
Harvest BU’s in the red area
ADL Life-cycle Matrix
The ADL model from the
consulting company Arthur D.
Little expanded even further on
this, devising a portfolio
management method based on
product life-cycle thinking.
In the 1970’s basically all major
consulting firms used some sort of
portfolio planning to generate
strategy recommendations.
Ironically, the conditions that initially determined the popularity of portfolio planning (oil
crisis in 1973 especially), also raised questions on the experience curve.
Some began to argue that the consequence of intensively pursuing a cost-minimising
strategy (like the ones based on the experience curve) would be a reduced ability to
make innovative changes and to respond to those introduced by competitors.
As for portfolio planning, one problem was that strategic recommendations for a SBU
often were inordinately sensitive to the specific portfolio planning technique employed.
In the words of a McKinsey’s executive, Fred Gluck,: «The
heavy dependence on ‘packaged’ techniques has
frequently resulted in nothing more than a tightening up,
or fine tuning, of current initiatives within the traditionally
configured businesses»
In order to loosen some of the constraints imposed by the mechanistic approaches, it was
proposed that successful companies’ strategies progress through four phases involving
an increasing level of dynamism, multidimensionality, and uncertainty.
The first two phases pertain to
Static Analysis
the other two to
Dynamic Analysis
‘To know’
To know
Be sure that, by the end of this module, you are able to illustrate:
Definition(s) of ‘strategy’;
Early development of ‘strategic thinking’ in business context;
Early development of ‘strategic thinking’ in business schools;
The role of consulting firms and the tools they developed;
Problems and critiques to early developments in ‘strategic thinking’
The Ansoff Matrix;
The Experience curve;
The Growth-Share Matrix;
The GE/McKinsey Matrix;
The ADL Life-Cycle Matrix;
The Four Phases in the Evolution of Formal Strategic Planning
Distinctive competence
Experience curve / Learning curve
Portfolio planning
Strategic Business Units (SBUs)
SWOT Analysis
The ADL Life-Cycle Matrix;
The Ansoff Matrix;
The Four Phases in the Evolution of Formal Strategic Planning by Gluck;
The GE/McKinsey Matrix;
The Growth-Share Matrix.