Strategy : definitions and vocabulary


Definitions of Strategy

In managerial literature, there is a vast number of different definitions of corporate strategy that have developed since the 1950s. Below, we present a selection of the most well-known definitions:

Definition by STRATEGOR

“Developing a strategy means choosing the areas of activity in which the company intends to be present and allocating resources so that it can sustain and develop in these areas.” This definition identifies two levels of strategy:

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  • Group strategy or corporate strategy: This involves choosing the areas of activity the company will engage in. The company then commits to one sector over another.
  • Competitive strategy or business strategy: This involves choosing the actions and maneuvers to implement to achieve a position that allows the company to face sector competitors.

Thus, strategy involves the choice of resource allocation, investment, or divestment.

Definition by DESREUMAUX

“Strategy is the set of specific actions that allow the achievement of goals and objectives within the framework of the company’s missions and general policy.” It consists of two aspects:

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  • Specifying the company’s specific activities, i.e., the market/product combinations or the product/market/technology triplets on which the company will focus its efforts. This involves defining the company’s activity portfolio to balance profitability, risk, and development prospects.
  • Specifying the development mode to be used, such as volume expansion, geographic extension, vertical integration, product diversification, or focusing on a single activity.

Strategic choices should be guided by the search for synergies between the company’s activities.

Definition by Chandler

“The determination of the long-term goals and objectives of an enterprise and the choice of actions and allocation of resources necessary to achieve them.”

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According to Chandler, it involves a process of:

  • Setting long-term objectives;
  • Choosing the appropriate action plan to achieve the set objectives;
  • Allocating the necessary resources to implement the action plan.

Definition by M. Porter

“The art of constructing sustainably defensible competitive advantages.”

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M. Porter emphasizes the concept of competitive advantage. For him, a strategy should enable the company to build, maintain, and develop a competitive advantage that allows it to face competition.

It involves answering three questions:

  • What is my business?
  • What is my competitive advantage?
  • How to develop?

General Definition of Strategy

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Strategizing involves creating conditions of economic, technological, social, political, and cultural congruence between the environment and the organization, so that the organization can sustainably achieve a performance deemed satisfactory by the leaders and other stakeholders (clients, shareholders, employees, banks, community, etc.).

Strategizing requires designing a statement, called strategic, which defines a context (in what situation are we evolving? what possible realities?), a future in terms of process (how do we want and need to organize action?) and content (what scope of action?), and finally a project (how and towards what to evolve to achieve certain objectives? what do we desire for the future?).

These questions make strategy an activity of design: designing ex-ante the conditions for action, designing the conflicting and relative situations of an actor compared to others, and finally designing the conditions for sustainable and long-term development of an organization.

These designs must then translate into a transformation of social and economic realities. To lead this transformation, strategy represents the set of decision criteria, chosen by the leadership group or strategic core, to orient, decisively and over time, the company’s activities and configuration.

These criteria are also the result of interactions among actors and the influence of values, expectations, and powers of all different stakeholders of the organization (shareholders, financial institutions, employees, clients, suppliers, pressure groups, etc.).

Strategy and the criteria it dictates are conceived from environmental conditions through an assessment of threats and opportunities from external forces acting on the organization, to then make choices for adapting the organization’s resources and competencies to derive a lasting advantage in terms of positioning.

The reverse is also true; strategy and its criteria can also be conceived from the organization’s resources and competencies to exploit and create new opportunities and areas of action in the environment.

The Vocabulary of Strategy

After presenting the most well-known definitions from the literature, we now emphasize the vocabulary of strategy, which has also undergone significant evolution. This section is divided into two parts: the first deals with the classical vocabulary of strategy, and the second part presents some new terms that have enriched the literature.

Classical Terms

a. Action

One of the major themes of strategic management is action. The strategic action of a company corresponds to a key stage of the strategy.

After an environmental observation phase, which includes analyzing general trends, the industry sector analysis, and competitor movements analysis, the company is supposed to turn inward and formulate strategic directions.

These strategic directions translate into numerous decisions, which are then translated into actions, disseminated within the organization according to responsibility levels.

The logical chain used in strategic management is thus established as follows: Analysis-Formulation-Decision-Action. Strategic action can take many forms.

It may involve competitive positioning. In this case, the company’s leaders aim to implement a general policy that leads customers to perceive the company’s offer differently.

The guiding idea often relies on the relationship between the value perceived by the customer (in terms of quality, image, services, etc.) and the price to be paid for acquiring or using the offered service. The recent repositioning of the Lacoste brand is a good example of such strategic action.

b. Competitive Advantage

A competitive advantage gives a company a source of revenue higher than the industry average or the basket of companies it compares itself to.

For a long time, economists argued that logically, super-profits (i.e., profits made in excess of results derived from strict application of supply and demand laws) were not “sustainable.” By sustainable, it is meant that they last, can be defended, or maintained.

Therefore, they rejected—and many still reject—the idea that combinations of assets can give a company a lasting competitive advantage.

All the art of strategic management, however, lies in seeking competitive situations where the company can wisely use its resources and specific skills to get the best returns.

In this sense, strategic management focuses more on the search for “rents,” using economic terminology, than on pure profit.

c. Barriers to Entry

The economic definition of barriers to entry is straightforward. It refers to all factors specific to an industry that reduce the rate of entry of new competitors below what one would expect given the level of profits made in the industry. Barriers to entry can take several forms:

  • The nature of the industry is taken into account;
  • The expected behavior of companies already in the market;
  • Factors related to production.

d. Value Chain

The value chain is a concept popularized by Michael Porter. The value chain is a breakdown of the main activities leading a company from receiving the necessary elements to produce its product/service to the associated services offered after sale and delivery.

M. Porter, however, distinguishes two types of activities in the value chain:

  • Primary activities are operations specific to a type of product/service.
  • Support activities qualify operations concerning functions not specific to a division, meaning intended for multiple productions. Examples include finance, human resources, procurement, and research and development.

e. Key Success Factors

Key success factors refer to the minimum conditions a company must meet to survive in a market. By key success factors, we mean:

  • Essential components of demand expressed by customers;
  • Economic characteristics of production;
  • The organization’s ability to adapt to changes.

Unlike a competitive advantage, which is always unique to a company, a key success factor applies more to an industry than to a specific company.

Modern Terms

a. Organizational Learning

A company is a sum of individuals who use a series of means at their disposal to satisfy the more or less explicit needs of others (shareholders, managers, customers, themselves, etc.).

It is well understood that these individuals accumulate experience, expertise, and knowledge on specific subjects and situations during routine operations.

The challenge for the company is to control and retain the majority of these individual experiences, expertise, and knowledge to benefit other members of the organization for increased efficiency in using available resources.

Achieving this goal means creating and maintaining a sufficient level of organizational learning to innovate and respond to competitor attacks.

b. Information Asymmetry

Information asymmetry is the technical term for the situation where two actors (individuals or companies) do not have the same information about a given subject. It may seem odd to name a situation that is quite common, as cases where information asymmetry is rare (e.g., games with simple rules).

However, economic reasoning was built on the opposite assumption, that actors can equally access the information they need, allowing markets to function properly.

c. Absorptive Capacity

Behind this strange term lies an essential notion of contemporary strategy: the capacity of a company to recognize, absorb, and retain new knowledge it encounters (technical, commercial practices, etc.) during operations with its clients or contacts with other organizations (cooperations, partnerships, alliances).

Absorptive capacity is directly linked to a company’s performance, with some being notorious for their inability to retain their innovations.

d. Competence

We have defined a company as a set of resources and strategic aptitudes. Resources are reservoirs of potential uses that must be activated by individual or organizational aptitudes.

What, then, is a competence? A competence is an organizational aptitude that gives a company a recognized competitive advantage.

Thus, it can be said that the retail group E. Leclerc has competence in purchasing the goods it distributes, or that Nokia has competence in the technological and marketing design of mobile phones.

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