The Importance of Strategy Process and Strategy Context in Determining Strategy Content - Research Paper Example

Strategy Process and Strategy Context in Determining Strategy Content Table of Contents Table of Contents 1 Strategy 2 Strategy Process 2 Strategy Content 2 Strategy Context 2 Literature Review 4 Importance of Strategy Process in Determining Strategy Content 9 Industry Example- Procter & Gamble 10 Importance of Strategy Context in Determining Strategy Content 14 Industry Example- Procter & Gamble in Russia 14 Reference 17 Strategy In 2010, Bob De Wit and Ron Meyer have divided the strategic initiatives into three segments such as Strategy Process, Strategy Content and Strategy Context. Triplet form of strategy can explained in the following manner. Strategy Process Bob De Wit and Ron Meyer have pointed out that strategy process should be analysed in the form questions like how, when and who. According to them strategy process is the way in way strategies are being formulated. Strategy Content Strategy content is the out of strategy process and the section deals with questions like what is required in order to realize importance of strategic thinking. Strategy Context Strategy context deals with impact of macro environment in strategy formulation. Link between triplet form of strategy and organizational purpose can be understood by the following diagram. (Source: Wit and Meyer, 2010, pp. 5-6) Researchers have pointed out that strategy process is complemented with three variables such as strategy formation, strategic thinking and strategic change. They have argued that three variables of strategic process work in overlapping manner instead of working in individual manner. Academic scholars such as Bob De Wit and Ron Meyer have stated that strategic content can be viewed as end product of strategy process. Strategic content is complemented with four levels of strategy such as Functional Level, Corporate Level, Business Level and Network Level. (Source: Wit and Meyer, 2010) Bob De Wit and Ron Meyer have pointed out that strategy context can be classified as the external circumstances directing the implementation and outcome of strategy process. They have differentiated external environment into three segments such as organizational context, industry context and international context. Literature Review Various research scholars have tried to create a link between triplets of strategy process, strategy context and strategy but unfortunately majority of them ended with an abstract model without much coherence with industry requirement. In 1986, Miller and Friesen have argued that strategy content is directly proportional to strategy context and strategic initiatives are more successful for electronic goods industry, manufacturing industries and paint industry in comparison to other industry environment (Miller and Friesen, 1986, pp. 37-55). In 1983, Hambrick argued that Porter’s Generic Competitive Strategies have little significance for small level firms while four levels of strategy such as Functional Level, Corporate Level, Business Level and Network Level have importance for only firms having sufficient resources (Hambrick, 1983, pp. 213- 230). In 1989, Bryman have argued that strategy content works in accordance with organizational resources. For example, Porter’s generic strategy would not be applicable to organizations suffering from resource crisis (read human capital, financial, marketing and IT) (Bryman, 1989, p. 169). Various research scholars have agreed that validity of three steps such strategy process, strategic content and strategic context is unquestionable. In 2005, Torgovicky’s has tested the validity of strategy content in e- business and concluded that synchronization of strategic content and strategy process can help a firm to achieve competitive edge over other competitors (Eldring, 2009, p. 10-15). Research works done academic scholars in the field of strategy process can be summarized in the following manner. Research Scholar Year Sample Size (Firms) Industry Outcome of the research O’Farrell 1992 More than 80 UK service sector Strategy process can create competitive advantage for organizations Kim 2004 74 Korean online shopping Malls Synchronization of strategy context and strategy process can create successful strategy content Thornhill and White 2007 More than 2300 Canadian Industries Strategy process can help organizations to achieve high operating margin Kim and Lim 1988 52 Korean electronics industry Firms achieved better result after adopting new strategy in accordance to macro environmental dynamics Miller 1988 87 Canadian manufacturing industry Selecting only one strategy (for example cost leadership strategy mentioned by Michael Porter) to achieve competitive advantage is questionable Wright 1991 More than 50 USA machinery industry Strategy process is more significant for big firms having diversified business in comparison to resource constrained small firms Hambrick 1983 163 USA capital goods industry Strategy content has direct relationship with organizational resources White 1986 14 Canadian industry Pure strategies help organizations to achieve high ROI or return on investment Miller and Friesen 1986 More than 100 USA consumer durable industry Big firms can rely on one particular strategy process (for example cost leadership) to create competition barrier for small firms Importance of Strategy Process in Determining Strategy Content Successful strategy content depends on reliable strategic decision making. Thompson has identified that reciprocal interdependence between various departments plays key role for strategic decision making. Interdependent nature of strategy variables decides the outcome of strategy process (Janczak, 2005). Ansgar Richter and Sascha Schmidt have pointed out that strategy process can help organizations to determine strategy content in a three way manner. Level 1 Lower level managers can determine the success of corporate level strategy through their actions. Lower managers allocate resources in order to achieve objective of corporate level strategy. Level 2 Mid level managers play the role of connector for top level and lower level management. Mid level managers help top level managers to select proper resource allocation strategy. which resource allocation decisions Level 3 Upper level managers take strategic decision to in accordance to strategy context with an intention of creating successful strategy content. (Source: Richter and Schmidt, 2005) Strategy process is complemented with three sub elements like strategy formation, strategic thinking and strategic change. The study will use case study of Procter & Gamble to analyse impact of each sub element on strategy content. Industry Example- Procter & Gamble Level of Strategy Process Strategic Initiatives Level of Strategy Content Strategic Thinking Product portfolio of P&G was not performing well during early 1990’s and overall sales growth of the company was slowed down. In this situation P&G has understood the importance of exploring global business opportunity in order to survive in the market. The Cincinnati based consumer goods company has changed the focus from offering Americanize products to manufacturing product in accordance to global consumer demand (Löfgren, 2005, pp. 102-115). Strategy Formation A. G Lafley (CEO of the company) has implemented hybrid product matrix in accordance with multidimensional (read demographic characteristics, family life cycle, age and gender) customer requirements. Hybrid product matrix emphasized on reshaping the value chain in order to fulfil local market demand. Front Back Hybrid Matrix model of P&G is complemented with SBU or Strategic Business Units. In this model work of SBUs is supervised by GBU or Global Business Units. Combination of functional level and Corporate level strategy Strategic Change Procter & Gamble has created a four dimensional organizational matrix with an intention of satisfying need of organizational dynamics. The four dimensional model of the company is complemented with GBU or global business unit, global functions (read R&D, operation, HRM, marketing and Finance), downstream value chain and upstream value chain and. Business units (read local and global) of the company supervise several activities like product development, product marketing, supply chain management, IT, finance and sales liaison and human resource management. Business level strategy Importance of Strategy Context in Determining Strategy Content Research scholars have identified strategy context depends on three variables such as organizational perspective, industry perspective and international perspective. Organizations use PESTLE framework for understanding international perspective while Porter’s five forces is used to understand industry perspectives. I/O model is used to understand impact of organizational perspective in strategy content. The study will use example of P&G in order to measure impact strategy context on strategy content. Industry Example- Procter & Gamble in Russia Level of Strategy Context Strategic Initiatives Level of Strategy Content International Context P&G has conducted detailed market research consumer purchase pattern in the country before entering Russia. They found that on purchasing power parity or PPP of Russian customer is $100 (excluding taxes) hence they do not have sufficient disposable income to purchase premium priced detergent. P&G adopted economies of scale with an intention of decreasing overall manufacturing cost of detergent and subsequent decrease in price. They established production plant in Russia in order to decrease steps of value chain. P&G was offering detergent at $1 (six times cheaper than offered price in USA) to Russian customers. Combination of functional level and corporate level strategy Industry Context P&G estimated that demand for detergent products were rising at rate of more than 20% but local detergent brands did not have the capability to fulfil the demand gap due to their poor quality. Organizational Context Procter & Gamble channelized revenue earned by global operation into value chain of Russian detergent market. The company appointed Russian people handle operation of SBUs in order to decrease threat of ethnocentrism. This strategy worked and P&G achieved not only annual sales revenue of $500 million but 50% average rate of return also. Business level strategy (Source: Ahlstrom and Bruton, 2009, pp. 148-152) Reference Ahlstrom, D. and Bruton, G. D., 2009. International Management: Strategy and Culture in the Emerging World. Stamford, Connecticut: Cengage Learning. Bryman, A., 1989. Research Methods and Organization Studies. London: Routledge. Eldring, J., 2009. Porter ́s (1980) Generic Strategies, Performance and Risk. Hamburg: Diplomica Verlag. Hambrick, D., 1983. An empirical typology of mature industrial- product environments. Academy of Management Journal [e-journal] (26) Available through: Emerald database [Accessed 3 December 2012]. Janczak, S., 2005. The Strategic Decision-Making Process in Organizations. [pdf] Available at: [Accessed 3 December 2012]. Löfgren, M., 2005. Winning at the first and second moments of truth: An exploratory study. Managing Service Quality [e-journal] (15.1) Available through: Proquest Database [Accessed 3 December 2012]. Miller, D. and Friesen, P.H., 1986. Porter's (1980) generic strategies and performance: An empirical examination with American data. Organization Studies [e-journal] 7(1) Available through: Proquest database [Accessed 3 December 2012]. Richter, A. and Schmidt, S. L., 2005. How Does Strategy Process Influence Strategy Content? Antecedents of Consistency between Resource Allocation Decision and Corporate Strategy. [pdf] Available at: [Accessed 3 December 2012]. Wit, B. D. and Meyer, R., 2010. Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage, Text and Readings. Stamford, Connecticut: Cengage Learning EMEA. Read More