Building on the understanding of the theories and models of firms, this chapter reviews the basic principles of strategic management of business enterprises. First, the basic principles of business strategy are explained. Only through in-depth understanding and diligent application of these principles will business executives be able to make strategic choices and craft an appropriate business strategy and the corresponding value configuration, business model, or e-business model for the firm. Second, the role of corporate strategy and its relationships with business unit strategies are discussed. The discipline of strategic management is introduced together with the principles of strategy maps—a model which is explained and illustrated by case example of its application by a leading corporation in more detail in Chapter V as part of a strategic alignment discussion. Third, the principles of strategic planning and the measurement of competitive strategy are described. These tasks ensure a corporate/business strategy is rigorously planned, resourced, and diligently executed to deliver the requisite strategic goals. Following on from the resource-based and activity-based theories of firms discussed in Chapter I, this chapter describes the corresponding resource-based and activity-based strategies. In addition, with the increasing importance of corporate governance comes the need to ensure due consideration is given to ethics in information technology deployment. Theories for ethics in IT and their incorporation in IT strategy are still emerging. The basic issues for IT strategy developmental consideration are reviewed.
Basic Principles Of Strategy
Strategy is not about finding the universally best way of competing, nor is it an effort to be all things to every customer. Strategy is about defining a way of competing that delivers unique value in a particular set of uses or for a particular set of customers (Porter, 1985). Indeed, as Thompson and Strickland (2003, p. 3) postulate, “a company’s strategy is the game plan management is using to stake out a market position, conduct its operation, attract and please customers, compete successfully, and achieve organizational objectives.” To establish and maintain a distinctive strategic positioning, Porter (2001) stipulates that a company needs to follow six fundamental principles:
It must start with the right goal: superior long-term return on investment. Only by grounding strategy in sustained profitability will real economic value be generated. Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it.
A company’s strategy must enable it to deliver a value proposition, or set of benefits, different from those that competitors offer.
Strategy needs to be reflected in a distinctive value configuration. To establish a sustainable competitive advantage, a company must perform different activities than rivals or perform similar activities in different ways.
Robust strategies involve trade-offs. A company must abandon or forego some product features, services, or activities in order to be unique at others.
Strategy defines how all the elements of what a company does fit together. A strategy involves making choices throughout the value configuration that are independent; all a company’s activities must be mutually reinforcing.
Strategy involves continuity of direction. A company must define a distinctive value proposition that it will stand for, even if that means foregoing certain opportunities.