Reading: Strategic Management Textbook Chapter 1

Chapter 1: Mastering Strategy: Art and Science

1.1 Introduction

1.2 What is Strategic Management?

1.3 Intended, Emergent, and Realized Strategies

1.4 The History of Strategic Management

1.5 Contemporary Critique of Strategic Management

1.6 Understanding the Strategic Management Process

1.7 Conclusion

Learning Objectives

After reading this chapter, you should be able to understand and articulate answers to the following

questions:

1. What is the difference between strategic management and strategy?

2. Why does strategic management matter?

3. What are intended, emergent, and realized strategies?

4. What is the history of strategic management?

5. What is the basic strategic management process?

1.1 Introduction

Successful organizations have found that a strategic management process helps them achieve their goals

within a dynamic and competitive environment. Strategic management is a comprehensive process designed

for firms to best use their resources and capabilities to provide superior firm performance. Analysis of the

external, competitive, and internal environments help shape the strategies that a firm pursues to be successful.

Strategies are broad goals that, as accomplished, help the organization move forward toward its vision.

Strategy formation goes back to ancient times, particularly used in warfare. Although not perfect, the strategic

management process creates a framework for an organization to look outside of itself and set a course for

success. The remaining chapters in this textbook walk students through this framework, providing tools for

Chapter 1: Mastering Strategy: Art and Science | 7

diagnosing the external, competitive, and internal environments to the development and implementation of

strategies. The process should always be performed with a framework of corporate ethics and values to limit

the temptation to cross the line where an organization should not go.

Figure 1.1: Elon Musk, CEO of Tesla

Will Tesla Make It?

On January 7, 2020, Tesla Inc. became the most valuable US automaker in history. Valued at $81.39 billion, Tesla

passed Ford Motor Company as most valuable. Approximately two weeks later, Tesla passed Volkswagen to

become the second most valuable car company worldwide. Still well behind Toyota, which has a $233 billion

market capitalization, Tesla’s growth is unprecedented in the automotive industry. Can Tesla become number

one worldwide?

Despite tremendous growth, Tesla has its share of problems as well. Its founder, Elon Musk, tweeted that

the company’s stock price was too high; sending the stock tumbling, the Model 3 lost Consumer Reports

recommendations, and COVID-19 shutdowns of factories slowed production. These problems raise serious

questions. Will Elon’s Twitter use continue to cause problems? Are the quality problems going to tank Tesla’s

growth? Can Tesla emerge from the COVID-19 shutdown successfully?

The company faces stiff competition from automakers attempting to regain their footholds in a highly

aggressive market. Competitors are attempting to compete in the same areas as Tesla. Porsche’s Taycan, a Tesla

competitor, got a huge win with a purchase from Bill Gates. As competitors continue to develop autonomous

capabilities and better electric batteries, will Tesla continue to dominate US auto markets?

8 | Chapter 1: Mastering Strategy: Art and Science

References

Langley, K. (2020, January 7). Tesla is now the most valuable US car maker of all time. Wall Street Journal.

https://www.wsj.com/articles/tesla-is-now-the-most-valuable-u-s-car-maker-of-all-time-11578427858.

Johnson, M. (2020 January 24). Tesla becomes world’s second most valuable carmaker. The Hill.

https://thehill.com/policy/transportation/automobiles/479712-tesla-becomes-worlds-second-mostvaluable-

carmaker.

Olsen, P. (2019, November 14). Tesla Model 3 loses CR recommendation over reliability issues. Consumer

Reports.

https://www.consumerreports.org/car-reliability-owner-satisfaction/tesla-model-3-loses-crrecommendation-

over-reliability-issues.

Siddiqui, F. (2020, May 1). Tesla stock plummets more than 10 percent after Elon Musk tweets valuation is ‘too

high.’ Washington Post. https://www.washingtonpost.com/technology/2020/05/01/musk-tesla-stock.

Matousek, M. (2020, February 18). Elon Musk took a shot at Bill Gates after the Microsoft founder said he

bought Porsche’s electric sports car instead of a Tesla — here are the details on Gates’ new car. Business

Insider.

https://www.businessinsider.com/porsche-reveals-taycan-turbo-and-taycan-turbo-s-productionmodel-

2019-9.

Image Credits

Figure 1.1: Maurizio Pesce. Elon Musk at Tesla Factory Fremont CA. CC BY 2.0. Retrieved from

https://flic.kr/p/emx5tu.

1.2 What is Strategic Management?

Defining Strategic Management

Issues such as those currently faced by Tesla are the focus of strategic management because they help answer

the key question examined by strategic management—”Why do some firms outperform other firms?” More

specifically, strategic management examines how actions and events involving top executives (such as Elon

Musk), firms (Tesla), and industries (the electric car market) influence a firm’s success or failure. Strategic

management involves the utilization or planned allocation of resources to implement major initiatives taken by

executives on behalf of stakeholders to improve performance of firms in an environment. Formal tools exist for

Chapter 1: Mastering Strategy: Art and Science | 9

understanding these relationships, and many of these tools are explained and applied in this book. But formal

tools are not enough; creativity is just as important to strategic management. Mastering strategy is therefore

part art and part science.

This introductory chapter is intended to enable students to understand what strategic management is and

why it is important. Because strategy is a complex concept, we begin by explaining what strategy is. Types of

strategies and the history and critique of strategic management are introduced. Lastly, students are presented

with the process of strategic management that firms use.

Figure 1.2: Strategic management within a firm is accomplished by a team of senior people.

Defining strategy is not simple. Strategy is a complex concept that involves many different processes and

activities within an organization. It involves goals and objectives that an organization needs to achieve to be

successful in the marketplace. The development of these goals, however, requires a strategic management

process to be done correctly and thoroughly.

A strategy is typically a higher level, broad goal, without a lot of specifics. It is long-term in nature. It provides

the direction that an organization wants to move toward to be more successful. New or revised strategies may

be developed as a result of changes in the business environment, such as what happened during the COVID-19

pandemic. Firms also routinely revise or create new strategies, often annually, by assessing and reacting to

external and competitive forces and to maximize organizational performance. By identifying their resources

and capabilities, firms attempt to deploy these through strategies that will give them a competitive advantage,

so consumers will buy their product or service instead of a competitor’s.

10 | Chapter 1: Mastering Strategy: Art and Science

Section Video

What is Strategic Management? What does Strategic Management mean? [03:48]

The video for this section further explains strategic management and strategies.

You can view this video here: https://youtu.be/g-wf6A0ailA.

Key Takeaway

• Strategic management focuses on firms and the different strategies that they use to become and

remain successful. Firms develop strategies, or longer range goals, to achieve success in the

competitive marketplace. In the dynamic environment in which firms exist, firms may alter their

strategies as conditions change.

Exercises

1. Have you developed a strategy to manage your career? Should you make it more detailed? Why

or why not?

2. What business that you visit regularly seems to have the most successful business model? What

makes the business model work?

References

Markoff, J. (1996, May 14). Apple unveils strategic plan of small steps. New York Times.

http://www.nytimes.com/1996/05/14/business/apple-unveils-strategic -plan-of-small-steps.html.

Porter, M. E. (1996, November–December). What is strategy? Harvard Business Review, 61–79.

Chapter 1: Mastering Strategy: Art and Science | 11

Reuters. (2011, March 1). Philadelphia area pizza owner used mice vs. competition—police. Reuters.

https://www.reuters.com/article/us-crime-pizza-idUSTRE7207MU20110301.

Image Credits

Figure 1.2: fauxels (2019). “Photo of people looking on laptop.” CC BY-SA 4.0. Retrieved from

https://www.pexels.com/photo/photo-of-people-looking-on-laptop-3182812/.

Video Credits

Audiopedia. (2017, April 4). What is strategic management? What does strategic management mean? [Video].

YouTube. https://youtu.be/g-wf6A0ailA.

1.3 Intended, Emergent, and Realized Strategies

A few years ago, a consultant posed a question to thousands of executives: “Is your industry facing overcapacity

and fierce price competition?” All but one said “yes.” The only “no” came from the manager of a unique

operation—the Panama Canal! This manager was fortunate to be in charge of a venture whose services are

desperately needed by shipping companies and that offers the only simple route linking the Atlantic and Pacific

Oceans. The canal’s success could be threatened if transoceanic shipping were to cease or if a new canal were

built. Both of these possibilities are extremely remote, however, so the Panama Canal appears to be guaranteed

to have many customers for as long as anyone can see into the future.

When an organization’s environment is stable and predictable, strategic planning can provide enough of a

strategy for the organization to gain and maintain success. The executives leading the organization can simply

create a plan and execute it, and they can be confident that their plan will not be undermined by changes

over time. But as the consultant’s experience shows, only a few executives—such as the manager of the

Panama Canal—enjoy a stable and predictable situation. Because change affects the strategies of almost all

organizations, understanding the concepts of intended, emergent, and realized strategies is important (Table

1.1). Also relevant are deliberate and unrealized strategies. The relationships among these five concepts are

presented in Figure 1.3, “A Model of Intended, Deliberate, and Realized Strategy” (Mintzberg & Waters, 1985).

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Table 1.1 Strategic Planning and Learning: Intended, Emergent, and Realized Strategies

Intended Strategy Emergent Strategy Realized Strategy

David McConnell aspired to be a

writer. When his books weren’t selling

he decided to give out perfume as a

gimmick.

The perfumes McConnell gave out

with his books were popular,

inspiring the foundation of the

California Perfume Company.

The company changed its name to Avon

in 1939, and its direct marketing system

remained popular for decades. Avon is

now available online and in retail outlets

worldwide.

When father and son team Scott and

Don Rasmussen were fired from the

New England Whalers, they

envisioned a cable television network

that focused on sports events in the

state of Connecticut.

As the network became successful,

ESPN has branched out beyond the

local softball games and demolition

derbies that were first broadcasted.

ESPN is now billed as the worldwide

leader in sports, owning several ESPN

affiliates as well as production of ESPN

magazine, ESPN radio, and broadcasting

for ABC.

In 1977, a cash-strapped advertiser

gave a radio station managed by

Lowell Paxson 112 electric can openers

to pay off an overdue bill. The can

openers were offered over the air for

$9.95 and quickly sold out.

An idea emerged. Soon the radio

station featured a regular show

called “Suncoast Bargaineers.” In

1982, Paxson and a partner launched

the Home Shopping Club on local

cable television in Florida.

The Home Shopping Network evolved

into a retail powerhouse selling on their

own channel on television. With the

increased popularity of online shopping

and competitors like Amazon, their

success has faltered.

Figure 1.3: A Model of Intended, Deliberate, and Realized Strategy

Intended Strategy

An intended strategy is the strategy that an organization hopes to execute. Intended strategies are usually

described in detail within an organization’s strategic plan. When a strategic plan is created for a new venture,

it is called a business plan. As an undergraduate student at Yale in 1965, Frederick Smith had to complete a

business plan for a proposed company as a class project. His plan described a delivery system that would gain

Chapter 1: Mastering Strategy: Art and Science | 13

efficiency by routing packages through a central hub and then pass them to their destinations. A few years later,

Smith started Federal Express (Funding Universe, n.d.), a company whose strategy closely followed the plan laid

out in his class project. FedEx has achieved a ranking among the World’s Most Admired Companies according

to Fortune magazine. Certainly, Smith’s intended strategy has worked out far better than even he could have

dreamed (Donahoe, 2011; Memphis Business Journal, 2011).

Emergent Strategy

Emergent strategy has also played a role at Federal Express. An emergent strategy is an unplanned strategy

that arises in response to unexpected opportunities and/or challenges. Sometimes emergent strategies result

in disasters. In the mid-1980s, FedEx deviated from its intended strategy’s focus on package delivery to

capitalize on an emerging technology: facsimile (fax) machines. The firm developed a service called ZapMail that

involved documents being sent electronically via fax machines between FedEx offices and then being delivered

to customers’ offices. FedEx executives hoped that ZapMail would be a success because it reduced the delivery

time of a document from overnight to just a couple of hours. Unfortunately, the ZapMail system had many

technical problems that frustrated customers. Even worse, FedEx failed to anticipate that many businesses

would simply purchase their own fax machines. ZapMail was shut down, and FedEx lost hundreds of millions of

dollars following its failed emergent strategy. In retrospect, FedEx made a costly mistake by venturing outside

of the domain that was central to its intended strategy: package delivery (Funding Universe, n.d.).

Emergent strategies can also lead to tremendous success. Southern Bloomer Manufacturing Company was

founded to make underwear for use in prisons and mental hospitals. Many managers of such institutions believe

that the underwear made for retail markets by companies such as Calvin Klein and Hanes is simply not suitable

for the people under their care. Instead, underwear issued to prisoners needs to be sturdy and durable to

withstand the rigors of prison activities and laundering. To meet these needs, Southern Bloomers began selling

underwear made of heavy cotton fabric.

An unexpected opportunity led Southern Bloomer to go beyond its intended strategy of serving institutional

needs for durable underwear. Just a few years after opening, Southern Bloomer’s performance was excellent. It

was servicing the needs of about 125 facilities, but unfortunately, this was creating a vast amount of scrap fabric.

An attempt to use the scrap as stuffing for pillows had failed, so the scrap was being sent to landfills. This was

not only wasteful but also costly.

One day, co-founder Don Sonner visited a gun shop with his son. Sonner had no interest in guns, but he quickly

spotted a potential use for his scrap fabric during this visit. The patches that the gun shop sold to clean the

inside of gun barrels were of poor quality. According to Sonner, when he “saw one of those flimsy woven

patches they sold that unraveled when you touched them, I said, “Man, that’s what I can do” with the scrap

fabric. Unlike other gun-cleaning patches, the patches that Southern Bloomer sold did not give off threads

or lint, two by-products that hurt guns’ accuracy and reliability. The patches quickly became popular with

the military, police departments, and individual gun enthusiasts. Before long, Southern Bloomer was selling

thousands of pounds of patches per month. A casual trip to a gun store unexpectedly gave rise to a lucrative

emergent strategy (Wells, 2002).

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Figure 1.4: The Social Network demonstrates how founder

Mark Zuckerberg’s intended strategy gave way to an

emergent strategy via the creation of Facebook.

Realized Strategy

A realized strategy is the strategy that an organization actually follows. Realized strategies are a product of a

firm’s intended strategy (i.e., what the firm planned to do), the firm’s deliberate strategy (i.e., the parts of the

intended strategy that the firm continues to pursue over time), and its emergent strategy (i.e., what the firm did

in reaction to unexpected opportunities and challenges). In the case of FedEx, the intended strategy devised by

its founder many years ago—fast package delivery via a centralized hub—remains a primary driver of the firm’s

realized strategy. For Southern Bloomers Manufacturing Company, realized strategy has been shaped greatly

by both its intended and emergent strategies, which center on underwear and gun-cleaning patches.

In other cases, firms’ original intended strategies are long forgotten. An unrealized strategy refers to the

abandoned parts of the intended strategy. When aspiring author David McConnell was struggling to sell his

books, he decided to offer complimentary perfume as a sales gimmick. McConnell’s books never did escape the

stench of failure, but his perfumes soon took on the sweet smell of success. The California Perfume Company

was formed to market the perfumes; this firm evolved into the personal care products juggernaut known today

as Avon. For McConnell, his dream to be a successful writer was an unrealized strategy, but through Avon,

a successful realized strategy was driven almost entirely by opportunistically capitalizing on change through

emergent strategy.

Strategy at the Movies

The Social Network

Did Harvard University student Mark

Zuckerberg set out to build a billion-dollar

company with more than 2.6 billion active

users? Not hardly. As shown in 2010’s The

Social Network, Zuckerberg’s original concept

in 2003 had a dark nature. After being dumped

by his girlfriend, a bitter Zuckerberg created a

website called “FaceMash” where the

attractiveness of young women could be voted

on. This evolved first into an online social

network called TheFacebook that was for

Harvard students only. When the network

became surprisingly popular, it then morphed

into Facebook, a website open to everyone. Facebook is so pervasive today that it has changed the

Chapter 1: Mastering Strategy: Art and Science | 15

way we speak, such as the word friend being used as a verb. Ironically, Facebook’s emphasis on

connecting with existing and new friends is about as different as it could be from Zuckerberg’s

original mean-spirited concept. Certainly, Zuckerberg’s emergent and realized strategies turned

out to be far nobler than the intended strategy that began his adventure in entrepreneurship.

Key Takeaway

• Most organizations create intended strategies that they hope to follow to be successful. Over

time, however, changes in an organization’s situation give rise to new opportunities and

challenges. Organizations respond to these changes using emergent strategies. Realized

strategies are a product of both intended and realized strategies.

Exercises

1. What is the difference between an intended and an emergent strategy?

2. Can you think of a company that seems to have abandoned its intended strategy? Why do you

suspect it was abandoned?

3. Would you describe your career strategy in college to be more deliberate or emergent? Why?

References

Donahoe, J. A. (2011). Forbes: Fred Smith’s fortune grows to $.21B. Memphis Business Journal.

http://www.bizjournals.com/memphis/news/2011/03/10/forbes-fred-smiths-fortune-grows-to.html.

Funding Universe. (n.d.). Fedex Corporation History.

http://www.fundinguniverse.com/company -histories/FedEx-Corporation-Company-History.html.

Fortune: FedEx 8th ‘most admired’ company in the world. Memphis Business Journal. (2011).

http://www.bizjournals .com/memphis/news/2011/03/03/fortune-fedex-8th-most- admired.html.

16 | Chapter 1: Mastering Strategy: Art and Science

Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6,

257–272.

Wells, K. (2002). Floating off the page: The best stories from the Wall Street Journal’s middle column. Simon &

Schuster. pg 97.

Image Credits

Figure 1.3: Kindred Grey (2020). “Intended, Deliberate, Realized Strategy.” CC BY-SA 4.0. Retrieved from

https://commons.wikimedia.org/wiki/File:Intended,_Deliberate,_Realized_Strategy.png.

Figure 1.4: Anthony Quintano (2018). “Mark Zuckerberg F8 2018 Keynote.” CC BY 2.0. Retrieved from

https://commons.wikimedia.org/wiki/File:Mark_Zuckerberg_F8_2018_Keynote.jpg.

1.4 The History of Strategic Management

Those who cannot remember the past are condemned to repeat it.

– George Santayana, The Life of Reason

Santayana’s quote has strong implications for strategic management. The history of strategic management can

be traced back several thousand years. Great wisdom about strategy can be acquired by understanding the past,

but ignoring the lessons of history can lead to costly strategic mistakes that could have been avoided. Certainly,

the present offers very important lessons; businesses can gain knowledge about what strategies do and do not

work by studying the current actions of other businesses. But this section discusses two less obvious sources of

wisdom: (1) strategy in ancient times and (2) military strategy. This section also briefly traces the development

of strategic management as a field of study.

Strategy in Ancient Times

Perhaps the earliest-known discussion of strategy is offered in the Old Testament of the Bible (Bracker,

1980). Approximately 3,500 years ago, Moses faced quite a challenge after leading his fellow Hebrews out of

enslavement in Egypt. Moses was overwhelmed as the lone strategist at the helm of a nation that may have

exceeded one million people. Based on advice from his father-in-law, Moses began delegating authority to other

leaders, each of whom oversaw a group of people. This hierarchical delegation of authority created a command

structure that freed Moses to concentrate on the biggest decisions and helped him implement his strategies

(Table 1.2 “Strategy in Ancient Times”). Similarly, the demands of strategic management today are simply too

Chapter 1: Mastering Strategy: Art and Science | 17

much for a chief executive officer (the top leader of a company) to handle alone. Many important tasks are thus

entrusted to vice presidents and other executives.

In ancient China, strategist and philosopher Sun Tzu offered thoughts on strategy that continue to be studied

carefully by business and military leaders today. Sun Tzu’s best-known work is The Art of War. As this title

implies, Sun Tzu emphasized the creative and deceptive aspects of strategy.

Strategic management borrows many ideas from ancient uses of strategy over time. The following anecdotes

provide a few notable examples of historical actions that remain relevant for the study of modern strategy.

Indeed, the Greek verb strategos means “army leader” and the idea of stratego ( from which we get the word

strategy) refers to the idea of destroying one’s enemies through the effective use of resources.

Table 1.2 Strategy in Ancient Times

1491 BC:

Moses uses hierarchical delegation of authority during the exodus from Egypt. Dividing a large set of people into smaller

groups creates a command structure that enables strategies to be implemented.

500 BC:

Sun Tzu’s The Art of War provides a classic handbook on military strategy with numerous business applications, such as

the idea “to win without fighting is the best.” This type of approach was used by businesses, such as Gap Inc. when they

decided to create their own stores rather than competing for shelf space for their clothing within traditional department

stores.

70 BC:

Roman poet Virgil tells the story of the Trojan horse, a classic strategic ploy where the Greek forces hid a select number

of soldiers in a large wooden horse that the Trojan army took into their heavily guarded city gates. Once inside the city,

Greek soldiers were able to open the gates and allow in reinforcements which eventually led to the end of the war.

c. 530:

King Arthur rules Britain. Legend says he made his famed round table so that no one, including him, would be seen as

above the others. His mission to find the Holy Grail serves as an exemplar for the importance of the central mission to

guide organizational actions.

One of Sun Tzu’s ideas that has numerous business applications is that winning a battle without fighting is

the best way to win. Apple’s behavior in the personal computer business offers a good example of this idea in

action. Many computer makers such as Toshiba, Acer, and Lenovo compete with one another based primarily

on price. This leads to price wars that undermine the computer makers’ profits. In contrast, Apple prefers to

develop unique features for its computers, features that have created a fiercely loyal set of customers. Apple

boldly charges far more for its computers than its rivals charge for theirs. Apple does not even worry much

about whether its computers’ software is compatible with the software used by most other computers. Rather

than fighting a battle with other firms, Apple wins within the computer business by creating its own unique

market and by attracting a set of loyal customers. Sun Tzu would probably admire Apple’s approach.

Perhaps the most famous example of strategy in ancient times revolves around the Trojan horse. According

to legend, Greek soldiers wanted to find a way to enter the gates of Troy and attack the city from the inside.

They devised a ploy that involved creating a giant wooden horse, hiding soldiers inside the horse, and offering

the horse to the Trojans as a gift. The Trojans were fooled and brought the horse inside their city. When night

arrived, the hidden Greek soldiers opened the gates for their army, leading to a Greek victory. In modern times,

18 | Chapter 1: Mastering Strategy: Art and Science

the term Trojan horse refers to gestures that appear on the surface to be beneficial to the recipient but that

mask a sinister intent. Computer viruses also are sometimes referred to as Trojan horses.

A far more noble approach to strategy than the Greeks’ is attributed to King Arthur of Britain. Unlike the

hierarchical approach to organizing Moses used, Arthur allegedly considered himself and each of his knights to

have an equal say in plotting the group’s strategy. Indeed, the group is thought to have held its meetings at a

round table so that no voice, including Arthur’s, would be seen as more important than the others. The choice

of furniture in modern executive suites is perhaps revealing. Most feature rectangular meeting tables, perhaps

signaling that one person—the chief executive officer—is in charge.

Another implication for strategic management offered by King Arthur and his Knights of the Round Table

involves the concept of mission. Their vigorous search to find the Holy Grail (the legendary cup used by Jesus

and his disciples at the Last Supper) serves as an exemplar for the importance of a central mission to guide

organizational strategy and actions.

Lessons Offered by Military Strategy

Key military conflicts and events have shaped the understanding of strategic management (Table 1.3). Indeed,

the word strategy has its roots in warfare. The Greek verb strategos means “army leader” and the idea of

stratego (from which we get the word strategy) refers to defeating an enemy by effectively using resources

(Bracker, 1980).

A book written nearly five hundred years ago is still regarded by many as an insightful guide for conquering and

ruling territories. Niccol  Machiavelli’s 1532 book The Prince offers clever recipes for success to government

leaders. Some of the book’s suggestions are quite devious, and the word Machiavellian is used today to refer to

acts of deceit and manipulation.

Two wars fought on American soil provide important lessons about strategic management. In the late 1700s,

the American Revolution pitted the American colonies against mighty Great Britain. The Americans relied on

nontraditional tactics, such as guerilla warfare and the strategic targeting of British officers. Although these

tactics were considered by Great Britain to be barbaric, they later became widely used approaches to warfare.

The Americans owed their success in part to help from the French navy, illustrating the potential value of

strategic alliances.

Nearly a century later, Americans turned on one another during the Civil War. After four years of hostilities, the

Confederate states were forced to surrender. Historians consider the Confederacy to have had better generals,

but the Union possessed greater resources, such as factories and railroad lines. As many modern companies

have discovered, sometimes good strategies simply cannot overcome a stronger adversary.

Chapter 1: Mastering Strategy: Art and Science | 19

Figure 1.5: General Hannibal

from Carthage, who led his

troops on elephants to cross

the Alps to attack the Romans.

Two wars fought on Russian soil also offer insights. In the 1800s, a powerful

French invasion force was defeated in part by the brutal nature of Russian winters.

In the 1940s, a similar fate befell German forces during World War II. Against the

advice of some of his leading generals, Adolf Hitler ordered his army to conquer

Russia. Like the French before them, the Germans were able to penetrate deep

into Russian territory. As George Santayana had warned, however, the forgotten

past was about to repeat itself. Horrific cold stopped the German advance. Russian

forces eventually took control of the combat, and Hitler committed suicide as the

Russians approached the German capital, Berlin.

Five years earlier, Germany ironically had benefited from an opponent ignoring

the strategic management lessons of the past. In ancient times, the Romans had

assumed that no army could cross a mountain range known as the Alps. An enemy

general named Hannibal put his men on elephants, crossed the mountains, and

caught Roman forces unprepared. French commanders made a similar bad

assumption in 1940. When Germany invaded Belgium (and then France) in 1940, its

strategy caught French forces by surprise.

The top French commanders assumed that German tanks simply could not make it through a thickly wooded

region known as the Ardennes Forest. As a result, French forces did not bother preparing a strong defense

in that area. Most of the French army and their British allies instead protected against a small, diversionary

force that the Germans had sent as a deception to the north of the forest. German forces made it through the

forest, encircled the allied forces, and started driving them toward the ocean. Many thousands of French and

British soldiers were killed or captured. In retrospect, the French generals had ignored an important lesson of

history: do not make assumptions about what your adversary can and cannot do. Executives who make similar

assumptions about their competitors put their organizations’ performance in jeopardy.

Strategic management often borrows lessons as well as metaphors from classic military strategy. For example,

major business decisions are often categorized as “strategic” while more minor decisions (such as small changes

in price or the opening of a new location) are referred to as “tactical” decisions. Here are a few select examples of

classic military strategies that hold insights for strategic decisions today.

20 | Chapter 1: Mastering Strategy: Art and Science

Table 1.3 Classic Military Strategy

1532:

Machiavelli’s book The Prince offers clever recipes for success to government leaders. Some of the book’s suggestions are

quite devious, and the word Machiavellian comes to refer to acts of deceit and manipulation.

1775:

The American Revolutionary War between the United States and Great Britain begins. Weaker American forces win the

war in part by relying on nontraditional tactics such as guerrilla warfare and the strategic targeting of British officers.

They also depend on help from the French navy, illustrating the potential value of strategic alliances.

1815:

Napoleon’s defeat at Waterloo demonstrates how spreading resources too thin can result in defeat of even one of the

most famed militaries of all time.

1865:

The American Civil War ends. Historians consider the Confederacy to have had better generals, but the Union possessed

greater resources. Sometimes good strategies simply cannot overcome a stronger adversary.

1944:

Following a series of deceptions designed to confuse and fool German forces, the Allies launch the D-Day invasion in an

effort to liberate Europe from Nazi control.

Strategic Management as a Field of Study

Universities contain many different fields of study, including physics, literature, chemistry, computer science,

and engineering. Some fields of study date back many centuries (e.g., literature), while others (such as computer

science) have emerged only in recent years. Strategic management has been important throughout history, but

the evolution of strategic management into a field of study has mostly taken place over the past century. A few

of the key business and academic events that have helped the field develop are discussed next.

The ancient Chinese strategist Sun Tzu made it clear that strategic management is partially art. But it is

also part science. Major steps toward developing the scientific aspect of strategic management were taken

in the early twentieth century by Frederick W. Taylor. In 1911, Taylor published The Principles of Scientific

Management. The book was a response to Taylor’s observation that most tasks within organizations were

organized haphazardly. Taylor believed that businesses would be much more efficient if management principles

were derived through scientific investigation. In The Principles of Scientific Management, Taylor stressed how

organizations could become more efficient through identifying the “one best way” of performing important

tasks. Implementing Taylor’s principles was thought to have saved railroad companies hundreds of millions of

dollars. Although many later works disputed the merits of trying to find the “one best way,” Taylor’s emphasis

on maximizing organizational performance became the core concern of strategic management as the field

developed.

Also in the early twentieth century, automobile maker Henry Ford emerged as one of the pioneers of strategic

management among industrial leaders. At the time, cars seemed to be a luxury item for wealthy people. Ford

adopted a unique strategic perspective, however, and boldly offered the vision that he would make cars the

average family could afford. Building on ideas about efficiency from Taylor and others, Ford organized assembly

Chapter 1: Mastering Strategy: Art and Science | 21

Figure 1.6: The Model T Ford, the first production car

produced on an assembly line.

lines for creating automobiles that lowered costs dramatically. Despite his wisdom, Ford also made mistakes.

Regarding his company’s flagship product, the Model T, Ford famously stated, “Any customer can have a car

painted any color that he wants so long as it is black.” When rival automakers provided customers with a variety

of color choices, Ford had no choice but to do the same.

The acceptance of strategic management as a

necessary element of business school programs took a

major step forward in 1959. A widely circulated report

created by the Ford Foundation recommended that all

business schools offer a capstone course. The goal of

this course would be to integrate knowledge across

different business fields such as marketing, finance,

and accounting to help students devise better ideas for

addressing complex business problems. Rather than

seeking a “one best way” solution, as advocated by

Taylor and Harvard’s business policy course, this

capstone course would emphasize students’ critical

thinking skills in general and the notion that multiple

ways of addressing a problem could be equally

successful in particular. The Ford Foundation report was a key motivator that led US universities to create

strategic management courses in their undergraduate and master of business administration programs.

Although strategy has been important throughout history, strategic management as a field of study has largely

developed over the past century. Below are a few key business and academic events that have helped the field

evolve.

22 | Chapter 1: Mastering Strategy: Art and Science

Table 1.4 The Modern History of Strategic Management

Year Notable event

1909 Ford first produces its classic Model T.

1911 Frederick W. Taylor publishes The Principles of Scientific Management.

1912 The precursor to the modern strategic management course was created at Harvard Business School under the title of

“Business Policy.”

1925 A&W Root Beer becomes America’s first franchised restaurant chain.

1959 The Ford Foundation recommends that business school curricula include a capstone course that integrates knowledge

across business fields in order to help solve complex business problems.

1962 Alfred Chandler publishes Strategy and Structure: Chapters in the History of the Industrial Enterprise.

1962 Sam Walton opens the first Wal-Mart in Arkansas, relying on a strategy that emphasized low prices and high levels of

customer service.

1980 The Strategic Management Journal is created.

1995 The launch of Amazon.com by founder Jeff Bezos is perhaps the pivotal event in creating internet-based commerce.

2001 Enron Corporation declares bankruptcy after a series of disclosures reveal that the firm’s stellar performance had been

a product of fraud and corruption.

2005 Thomas Friedman’s book The World is Flat: A Brief History of the Twenty-First Century suggests that many advantages

that firms in developed countries like the United States take for granted are disappearing.

2010 Walmart becomes the largest company in the world.

2018 Apple becomes the first company to be worth $1 trillion.

2020 Walmart is still the highest revenue producing company in the world.

In 1962, business and academic events occurred that seemed minor at the time but that would later give rise

to huge changes. Building on the business savvy that he had gained as a franchisee, Sam Walton opened the

first Walmart in Rogers, Arkansas. Relying on a strategy that emphasized low prices and high levels of customer

service, Walmart grew to 882 stores with a combined $8.4 billion dollars in annual sales by 1985. A decade later,

sales reached $93.6 billion across nearly 3,000 stores. In 2010, Walmart was the largest company in the world.

In recent years, Walmart has arguably downplayed customer service in favor of cutting costs. Time will tell

whether deviating from Sam Walton’s original strategic positioning will hurt the company.

Two pivotal events that firmly established strategic management as a field of study took place in 1980. One

was the creation of the Strategic Management Journal. The introduction of the journal offered a forum for

researchers interested in building knowledge about strategic management. Much like important new medical

findings that appear in the Journal of the American Medical Association and The New England Journal of Medicine,

the Strategic Management Journal publishes path breaking insights about strategic management.

The second pivotal event in 1980 was the publication of Competitive Strategy: Techniques for Analyzing

Industries and Competitors by Harvard professor Michael Porter. This book offers concepts such as five forces

analysis and generic strategies that continue to strongly influence how executives choose strategies more than

thirty years after the book’s publication. Given the importance of these concepts, both five forces analysis and

Chapter 1: Mastering Strategy: Art and Science | 23

generic strategies are discussed in detail in Chapter 3 “Evaluating the External Environment” and Chapter 6

“Selecting Business-Level Strategies”, respectively.

Many consumers today take web-based shopping for granted, but this channel for commerce was created

recently. The 1995 launch of Amazon by founder Jeff Bezos was perhaps the pivotal event in creating internetbased

commerce. In pursuit of its vision “to be earth’s most customer-centric company,” Amazon has diversified

far beyond its original focus on selling books and has evolved into a dominant retailer. Powerful giants have

stumbled badly in Amazon’s wake. Sears had sold great varieties of goods (even including entire houses) through

catalogs for many decades, as had JCPenney. Neither firm created a strong online sales presence to keep pace

with Amazon, and both eventually dropped their catalog businesses. As often happens with old and large firms,

Sears and JCPenney were outmaneuvered by a creative and versatile upstart.

Ethics have long been an important issue within the strategic management field. Attention to the need for

executives to act ethically when creating strategies increased dramatically in the early 2000s when a series

of companies such as Enron Corporation, WorldCom, Tyco, Qwest, and Global Crossing were found to have

grossly exaggerated the strength of their performance. After a series of revelations about fraud and corruption,

investors in these firms and others lost billions of dollars, tens of thousands of jobs were lost, and some

executives were sent to prison.

Like ethics, the implications of international competition are of central interest to strategic management.

Provocative new thoughts on the nature of the international arena were offered in 2005 by Thomas L. Friedman.

In his book The World Is Flat: A Brief History of the Twenty-First Century, Friedman argues that many of the

advantages that firms in developed countries such as the United States, Japan, and Great Britain take for

granted are disappearing. One implication is that these firms will need to improve their strategies if they are to

remain successful.

Looking to the future, it appears likely that strategic management will prove to be more important than ever.

In response, researchers who are interested in strategic management will work to build additional knowledge

about how organizations can maximize their performance. Executives will need to keep track of the latest

scientific findings. Meanwhile, they also must leverage the insights that history offers on how to be successful

while trying to avoid past mistakes.

Key Takeaway

• Although strategic management as a field of study has developed mostly over the last century,

the concept of strategy is much older. Understanding strategic management can benefit greatly

by learning the lessons that ancient history and military strategy provide.

24 | Chapter 1: Mastering Strategy: Art and Science

Exercises

1. What do you think was the most important event related to strategy in ancient times?

2. In what ways are the strategic management of business and military strategy alike? In what ways

are they different?

3. Do you think executives are more ethical today as a result of the scandals in the early 2000s?

Why or why not?

References

Bracker, J. (1980). The historical development of the strategic management concept. Academy of Management

Review, 5(2), 219–224.

Image Credits

Figure 1.5: Verlag, Phaidon. “A marble bust, reputedly of Hannibal, originally found at the ancient city-state of

Capua in Italy.” Public Domain. Retrieved from https://commons.wikimedia.org/wiki/

File:Mommsen_p265.jpg.

Figure 1.6: ModelTMitch. “1925 Ford Model T touring, built at Henry Ford’s Highland Park Plant in Dearborn,

Michigan.” CC BY-SA 4.0. Cropped. Retrieved from

https://commons.wikimedia.org/wiki/File:1925_Ford_Model_T_touring.jpg.

1.5 Contemporary Critique of Strategic Management

This book focuses attention on the widely accepted approaches that frame the contemporary practice and

understanding of strategic management. The field of strategic management has always had its critics, and,

as with any academic discipline, this criticism has challenged the field to adapt and improve over time. Over

time, both practitioners and scholars have voiced concerns about various areas of the strategic management

process, and this section summarizes the general critiques to deepen your own ability to critically consider the

processes of strategic management in your own organizations and career.

The kinds of concerns about strategic management differ depending upon who is voicing them. From the

Chapter 1: Mastering Strategy: Art and Science | 25

perspective of firm managers or executives, commonly expressed concerns target the high levels of investment

required in order to get more benefit than cost from an effective strategic management process. For strategic

management to be done well, it is typically a complex process that is high in cost, time, and difficulty (Cameron,

2019; Katsanos, 2019). Further, some decision makers are skeptical of the ability of strategic management to

achieve its goal: to accurately anticipate an unknown future (Cameron, 2019; Llopis, 2019). Some critics go so far

as to suggest that committing to a strategy may limit a firm’s ability to respond to a changing environment when

companies “make future decisions on obsolete data” (Cameron, 2019). In the opening paragraph of Michael

Raynor’s bestselling book The Strategy Paradox, he says:

“Most strategies are built on specific beliefs about the future. Unfortunately, the future is deeply unpredictable.

Worse, the requirements of breakthrough success demand implementing strategy in ways that make it

impossible to adapt should the future not turn out as expected. The result is the Strategy Paradox: strategies

with the greatest possibility of success also have the greatest possibility of failure” (2007, p. 1).

In his book, Mr. Raynor goes on to discuss that survivorship bias is an issue because the strategies of firms

that survive are evaluated more than those that fail. The issue of survivorship bias also is a research area

within the field of strategic management. Additionally, other strategy scholars raise concerns about how the

dominant approaches to strategic management reinforce existing assumptions about power and inequalities

within organizations (e.g., affecting gender, race, etc.) and in the global market (i.e., reproducing the same

“winners” and “losers”) (Knights & Morgan, 1991; Levy et al., 2011; Montgomery et al., 1989).

Some critiques focus on the inadequacies of specific strategic tools or theories. For example, some scholars

challenge existing firm-level, resource-based approaches for its inability to adequately assess and capture

changing contexts and capabilities (resource-based approaches are introduced in Chapter 5) (Bromiley &

Fleming, 2002; Teece, 2019). Finally, the field of strategic management has been critiqued for being too

concerned with achieving immediate, business “results” (Montgomery et al., 1989), and at other times, for not

being attuned enough to the real-time, practical needs of business (Pricop, 2012).

It is evident that there are plenty of reasons to think critically about how a firm’s decision makers choose to

engage in their strategic management processes. Ultimately, responsibility for determining a firm’s strategic

approach is left to the discretion of the firm’s executive team. While the theories, tools, and resources

introduced throughout this text are well-researched, time-tested, and best practices in the field of strategic

management, no approach is perfect, nor is it intended to be.

References

Bromiley, P., & Fleming, L. (2002). 15. The resource-based view of strategy: a behaviorist critique. The

Economics of Choice, Change and Organization: Essays in Memory of Richard M. Cyert (319). Edward Elgar

Publishing.

Cameron, S. (2019). What are some disadvantages of strategic management? bizfluent.

https://bizfluent.com/info-7933037-disadvantages-strategic-management.html

26 | Chapter 1: Mastering Strategy: Art and Science

Katsanos, K. (2019). What are some disadvantages of strategic management. Chron.

https://smallbusiness.chron.com/disadvantages-strategic-management-80740.html

Knights, D., & Morgan, G. (1991). Corporate strategy, organizations, and subjectivity: A critique. Organization

Studies, 12(2), 251-273.

Levy, D. L., Alvesson, M., & Willmott, H. (2011). Critical approaches to strategic management. In M. Alvesson &

H. Willmott (Eds.), Critical Management Studies, 14, 92-110. Los Angeles: Sage.

Llopis, G. (2019). Corporate strategies were not designed for today’s age of personalization. Forbes.

https://www.forbes.com/sites/glennllopis/2019/11/04/corporate-strategies-were-not-designed-fortodays-

age-of-personalization/#5da602a51d06

Montgomery, C. A., Wernerfelt, B., & Balakrishnan, S. (1989). Strategy content and the research process: A

critique and commentary. Strategic Management Journal, 10(2), 189-197.

Pricop, O. C. (2012). Critical aspects in the strategic management theory. Procedia – Social and Behavioral

Sciences, 58, 98-107. doi:https://doi.org/10.1016/j.sbspro.2012.09.983

Raynor, M. E. (2007). The strategy paradox: Why committing to success leads to failure (and what to do about

it). Currency.

Teece, D. J. (2019). A capability theory of the firm: an economics and (strategic) management perspective. New

Zealand Economic Papers, 53(1), 1-43.

1.6 Understanding the Strategic Management Process

Strategic management is a process that involves building a careful understanding of how the world is changing,

as well as a knowledge of how those changes might affect a particular firm. CEOs, such as late Apple founder

Steve Jobs, must be able to carefully manage the possible actions that their firms might take to deal with

changes that occur in their environment. We present a model of the strategic management process in Figure 1.7,

“Overall Model of the Strategic Management Process”. This model also guides our presentation of the chapters

contained in this book.

Chapter 1: Mastering Strategy: Art and Science | 27

Figure 1.7: Overall Model of the Strategic Management Process

The strategic management process begins with an understanding of strategy and performance. As we have

noted in this introductory chapter, strategic management is both an art and a science, and it involves multiple

conceptualizations of the notion of strategy drawn from recent and ancient history. In Chapter 2 “Assessing

Organizational Performance”, we focus on how the organization’s mission and vision shape the development of

the firm’s strategy. Consequently, how managers understand and interpret the performance of their firms is

often central to understanding strategy.

28 | Chapter 1: Mastering Strategy: Art and Science

Figure 1.8: The importance of knowing yourself and your

opponent is applicable to the knowledge of strategic

management for business, military strategy, and classic

strategy games such as chess.

Environmental and internal scanning is the next stage in the process. Managers must constantly scan the

external environment for trends and events that affect the overall economy, and they must monitor changes

in the particular industry in which the firm operates. For example, Apple’s decision to create the iPhone

demonstrates its ability to interpret that traditional industry boundaries that distinguished the cellular phone

industry and the computer industry were beginning to blur. At the same time, firms must evaluate their

own resources to understand how they might react to changes in the environment. For example, intellectual

property is a vital resource for Apple. Between 2008 and 2010, Apple filed more than 350 cases with the US

Patent and Trademark Office to protect its use of such terms as apple, pod, and safari (Apple Inc.).

A classic management tool that incorporates the idea of scanning elements both external and internal to

the firm is SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknesses are

assessed by examining the firm’s internal resources, while opportunities and threats refer to external events

and trends. The value of SWOT analysis parallels ideas from classic military strategists such as Sun Tzu, who

noted the value of knowing yourself as well as your opponent. Chapter 3 “Evaluating the External Environment”

examines the topic of evaluating the external environment in detail, and Chapter 4 “Evaluating the Internal

Environment” presents concepts and tools for managing firm resources. Synthesizing the information gained in

the external and internal analysis into a SWOT framework is addressed in Chapter 5. The SWOT is then used to

formulate the strategic issue(s) that the firm must deal with as it formulates strategies.

Strategy formulation is the next step in the strategic

management process. This involves developing specific

strategies and actions. Certainly, part of Apple’s

success is due to the unique products it offers the

market, as well as how these products complement one

another. A customer can buy an iPod that plays music

from iTunes—all of which can be stored in Apple’s Mac

computer (Inside CRM Editors, n.d.). In Chapter 6

“Selecting Business-Level Strategies”, we discuss how

selecting business-level strategies helps to provide

firms with a recipe that can be followed that will

increase the likelihood that their strategies will be

successful. In Chapter 7, “Innovation Strategies”, we

present insights on the role innovation plays in

strategy development and implementation. Chapter 8

“Selecting Corporate-Level Strategies” focuses on selecting corporate-level strategies, and Chapter 9

“Competing in International Markets” presents possibilities for firms competing in international markets.

Strategy implementation is the final stage of the process. One important element of strategy implementation

entails crafting an effective organizational structure and corporate culture. For example, part of Apple’s success

is due to its consistent focus on innovation and creativity that Steve Jobs described as similar to that of a startup.

Chapter 10 “Executing Strategy through Organizational Design” offers ideas on how to manage these

elements of implementation. The final chapter explores how to lead an ethical organization through corporate

governance, social responsibility, and sustainability.

Chapter 1: Mastering Strategy: Art and Science | 29

Section Video

Strategic Management Process [04:35]

The video for this lesson explains the strategic management process.

You can view this video here: https://youtu.be/o0U0gwvnhek.

Key Takeaway

• Strategic management is a process that requires the ability to manage change. Consequently,

executives must be careful to monitor and to interpret the events in their environment, to take

appropriate actions when change is needed, and to monitor their performance to ensure that

their firms are able to survive and, it is hoped, thrive over time.

Exercises

1. Who makes the strategic decisions for most organizations?

2. Why is it important to view strategic management as a process?

3. What are the four steps of the strategic management process?

4. How is chess relevant to the study of strategic management? What other games might help

teach strategic thinking?

References

Apple Inc. Litigation. In Wikipedia. en.wikipedia.org/wiki/Apple_Inc._ litigation.

Inside CRM Editors. (n.d.). Effective strategies Apple uses to create loyal customers. Retrieved from

30 | Chapter 1: Mastering Strategy: Art and Science

https://it.toolbox.com/blogs/inside-crm/11-effective-strategies-apple-uses-to-create-loyalcustomers-

100109.

Image Credits

Figure 1.7: Kindred Grey (2020). “Chapter Layout for Strategic Management.” CC BY-SA 4.0. Retrieved from

https://commons.wikimedia.org/wiki/File:Chapter_Layout_for_Strategic_Management.png.

Figure 1.8: Shirinsokhan, Mahmoudreza. “Chess” CC BY-NC 2.0. Retrieved from https://flic.kr/p/bPNmxi.

Video Credits

Afra Alnaimi. (2014, November 29). Strategic Management Process [Video]. YouTube.

https://youtu.be/o0U0gwvnhek.

1.7 Conclusion

This chapter provides an overview of strategic management and strategy. Ideas about strategy span many

centuries, and modern understanding of strategy borrows from ancient strategies as well as classic military

strategies. You should now understand that there are numerous ways to conceptualize the idea of strategy, and

that effective strategic management is needed to ensure the long-term success of firms. The study of strategic

management provides tools to effectively manage organizations, but it also involves the art of knowing how

and when to apply creative thinking. Knowledge of both the art and the science of strategic management is

needed to help guide organizations as their strategies emerge and evolve over time. Such tools will also help

you effectively chart a course for your career as well as to understand the effective strategic management of

the organizations for which you will work.

Exercises

1. Think about the best and worst companies you know. What is extraordinary (or extraordinarily

bad) about these firms? Are their strategies clear and focused or difficult to define?

2. If you were to write a “key takeaway” section for this chapter, what would you include as the

material you found most interesting?

Chapter 1: Mastering Strategy: Art and Science | 31