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Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Seven Chapters of Strategic Wisdom

The corporate histories Chandler recounted caught this note of passivity or, at least, inadvertence in establishing strategic direction. Strategies weren’t the product of heroic, one-time decision making by top management; they grew instead out of a series of smaller, almost ad hoc decisions — decisions to enter a new territory to seek out new customers, or to respond to problems in a particular market by introducing a new product. (See “Professor Chandler’s Revolution,” by Art Kleiner, s+b, Second Quarter 2002.)

Chandler himself was more interested in the organizational aspect of his tale than in the strategic. His main conclusion, and the idea for which his book is principally remembered, is that “structure follows strategy.” The lines of the organization chart, which may seem arbitrarily drawn, actually reflect the path laid out by business decisions. As his four subject companies spread nationwide to serve the American market, for example, they were almost forced to organize themselves into relatively freestanding divisions, in which division heads had profit-and-loss responsibility for operations that integrated functions from production through sales.

In his book’s introduction, Chandler was the first to lay out some of the themes that would later become recurrent, even gospel, as thinking about strategy evolved. A strategy is a response to changes in a business’s environment, he wrote. It concerns itself with the long term, not so much the day-to-day. Responsibility for creating it lies with top management, or what Chandler quaintly called the company’s “general office,” as opposed to division or department headquarters. (Peter Drucker hadn’t yet institutionalized the term management for either the function or the team doing it.) Chandler argued that there is a distinction between making strategy and implementing it, which is a distinction that still bedevils discussions of the subject. The historian also broached more subtle notions whose importance would become clear over time: that innovation is the driving engine for most successful strategies, and that strategy without structural change produces few gains in a company.

Although H. Igor Ansoff published his book Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (McGraw-Hill) in 1965, to my eyes the first work to organize itself entirely around the core idea is The Concept of Corporate Strategy, published in 1971 by Kenneth R. Andrews, a Harvard Business School professor. In its second, central chapter — which bears the same name as the book — Andrews made what we might think of as the grand existential claim for strategy, asserted in the conclusion to his definition of the term: A strategy is “the pattern of major objectives, purposes or goals and essential policies and plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.” (That will be the last definition quoted in this review, I promise.) By the mid-1970s, thanks in large part to the efforts of the Boston Consulting Group (BCG) — a relentless publicity machine for strategy, which the firm had taken as its specialty — most businesspeople were familiar with the concept and the imperative for creating one, even if they didn’t necessarily agree on what should go into it.

Besides proclaiming the big S as the central act of corporate self-definition, Andrews recited a formidably long list of elements required for the package to be complete. To capture the “present and projected character of the organization,” a strategy should indicate the company’s choice of products, markets to be served, channels to reach those markets, means of financing the operation, and profit objectives — which could be stated in earnings per share or return on investment. His criteria for evaluating a strategy included a few whose good sense is made all the more striking by the degree to which some subsequent practitioners neglected them: Does your company have the resources, including the skills, it will need to carry out the grand scheme? Is the level of risk appropriate? Have you bothered to tell your people what you intend to do? Other criteria will impress financially hyperfocused types, including hard-core Milton Friedmanites, as outrageous: Does the strategy make the “desired level of contribution to society”? And does it fit with the “personal values and aspirations of key managers”?

 
 
 
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Strategy Resources:
Works mentioned in this review.

  1. Alfred D. Chandler Jr., Strategy and Structure: Chapters in the History of the American Industrial Enterprise (MIT Press, 1962), 478 pages: Introduction
  2. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones-Irwin, 1971), 264 pages: Chapter 2, “The Concept of Corporate Strategy”
  3. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980), 416 pages: Chapter 2, “Generic Competitive Strategies”
  4. Thomas J. Peters and Robert H. Waterman Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982), 386 pages: Chapter 2, “The Rational Model”
  5. Richard N. Foster, Innovation: The Attacker’s Advantage (Summit Books, 1986), 316 pages: Chapter 4, “The S-Curve: A New Forecasting Tool”
  6. Andrew S. Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company (Currency Doubleday, 1996), 222 pages: Chapter 5, “‘Why Not Do It Ourselves?’”
  7. Henry Mintzberg, The Rise and Fall of Strategic Planning (Free Press, 1994), 478 pages: Chapter 5, “Fundamental Fallacies of Strategic Planning”
 
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