Copyright 2010 by Marjorie J. Cooper.

To define further the foundation for strategy construction and execution, Drucker (1994) mentions four "specifications" regarding these assumptions that must also be true if the firm is to actualize and sustain its objectives. First, assumptions about the company's environment, its mission, and its core competencies must mirror reality. Ambitious executives commonly aspire beyond the organization's capabilities or envision a market opportunity that merely exists in their imagination. For example, in a stunning case of self-deception and institutional hubris, and at the height of American enthusiasm for Japanese-made automobiles, General Motors introduced the Italian-made Allante in 1987 with a price tag of $56,000+ (Schlesinger, 1988). Clearly, the company failed to appreciate fully the market's resistance toward paying a premium price for a car that was poorly engineered compared to its competitors and perceived by consumers as overpriced. Reality checks are essential.

Second, assumptions in all implementation areas must fit together to form a cohesive view of reality, one that offers opportunities that can be addressed by the business. When Howard Schultz, then director of marketing and retail sales for a small Seattle coffee roaster, was strolling through the piazzas of Italy now several decades ago, he was hit with an epiphany (Cuneo, 1994). His vision involved coffeehouses where customers lined up for designer concoctions, paid premium prices, and treated the coffee house as a destination venue. This epiphany became Starbucks, one of the great American brands and a successful business strategy because Schultz's assumptions about marketplace reality were valid.

Third, the theory of the business must be understood throughout the organization. That is, members of the organization must be able to articulate and act based on goals, structures, and activities of their specific business: what it stands for and how it operates. Then, it becomes possible for members of the organization to perform the fourth specification, which is to test their theory of the business against environmental reality, incorporating the ability to change as needed.

Factors That Comprise Strategy

In a formal sense, a strategy is an integrative plan encompassing the organization's goals (or objectives), its policies, and its programs (Quinn, 1981). Goals give focus to an organization's efforts, delineating what major accomplishments the company expects to achieve. Policies are the rules and guidelines, both formal and informal, that an organization uses to set limits on the actions of its members. Programs are closely linked to the strategic implementation process, providing specified action sequences that direct organizational members toward the achievement of the organization's objectives.

Formalized strategic planning, generally characterized by Drucker's assumptions and Quinn's factors (or equivalents), is highly representative of the process taught in most business schools. However, Quinn's research suggests that the academic ideal is far from common practice. For example, Quinn notes that "Planning activities in major enterprises often [become] bureaucratized, rigid, and costly paper-shuffling exercises divorced from actual decision processes." Moreover, ". . . formal planning often [becomes] just another aspect of controllership-and another weapon in organizational politics" (Quinn, 1981, 42). Most important strategic decisions in the companies that Quinn researched occurred outside of the formal strategic planning process, such that by the end of his research, Quinn noted that ". . . various purported 'normative' approaches to planning began to appear highly questionable, if not actively destructive, in many instances" (Quinn, 1981, 42).

Experience subsequent to the publication of Quinn's research has failed to contradict his findings. In fact, anecdotal evidence throughout the business community suggests that in most cases, the formal "strategic plan" for the coming year (or decade) quickly becomes an exercise in futility and a great waster of human resources.

Criteria for a Good Strategy

In spite of the weaknesses of the strategic planning process as commonly practiced, businesspeople and academics alike, as well as organizational managers from nonprofit and governmental entities, virtually unanimously acknowledge the need for order and some sort of strategic development. Perhaps it would be useful to begin with expectations: What criteria do people expect as outputs for a good strategy? Several essential criteria emerge from the literature.

The two most widely cited criteria are superior performance and competitive advantage (Hill and Jones, 2007, 3). Examples encompassed by these two broad categories include profitability, responsiveness to customers, responsiveness to employees, consistency in meeting objectives, a business model that is customized to the organization's strengths, sustainability, and the ability to handle uncertainty. Thus, contemporary theories of business strategy were developed to focus on these critical outcomes, without which the viability of an organization is in question.

Profitability in TOC terms means that Throughput, which is defined in the TOCICO Dictionary (Sullivan et al., 2007, 47) as "the rate at which the system generates 'goal units'." A company that does not make money will not stay in business for long (barring government bailouts, of course).

Responsiveness to customers is one of the key requirements for a viable business strategy. Customers vote with their financial resources. If one organization does not recognize and respond to a customer's needs, she will move on to an organization that does. If a company loses enough of its customers, it's out of business.

Since the marketplace is highly competitive, it makes sense for businesses to invest their resources to further develop and support competencies and skills for which the company is already highly capable. Companies that attempt to take on challenges for which they are underprepared compared to their competitors often experience failure.

Sustainability certainly has environmental connotations today. Companies must be responsive to governmental, regulatory, and community concerns about low impact on the environment. However, sustainability has another important implication for business as well. A sustainable strategy is one that will be successful over time, rather than being a short-term fad that quickly becomes outdated and irrelevant to the marketplace. By leveraging their resources, certain Japanese companies such as Toyota and Canon have made, over time, huge inroads on a global scale, thus enhancing their overall sustainability (Hamel and Prahalad, 1989, 64).

Finally, companies must incorporate into their strategies the means by which they can be flexible to changing demands. Product life cycles are growing shorter; consumer preferences adapt rapidly; and economic unrest is pervasive. Thus, companies who are flexible, nimble, and creative stand a much better chance of success than companies that refuse or are unable to change their strategies to meet changing conditions. Part of a good strategy is the built-in capability to respond quickly when a challenge arises.

Theories of Business Strategy

In this section, several theories of strategic management will be examined. Four dominant theories include Ansoff's (1965) matrix of four strategies, Porter's list of strategic foci, learning/emergent strategies, and the resource-based view. A brief review of Mintzberg and Lampel's (1999) summarization of the various schools of strategic management follows. This section concludes with a discussion of the scope of strategic management, which demonstrates how extensive and demanding the formulation and implementation of a strategic plan can be. The complexity of strategic management perhaps explains in some small way why business strategies often go awry.

Ansoff's Matrix of Four Strategies

In his book Corporate Strategy (1965), Ansoff introduced his concept of strategy. He believed that firms should develop a "common thread" that suggests plausible extensions of the firm's product-market position. Ansoff dubbed these extensions growth vectors as represented in the 2 2 matrix shown in Fig. 17-1. The four strategies are market penetration, product development, market development, and diversification.

In market penetration, the strategy is to increase market share for current products in the markets in which they are currently offered. In today's competitive marketplace, market penetration generally means not so much finding new users as taking users away from existing competitors-always a challenging strategy.

Product development is the process of conceiving, engineering, and constructing new product solutions for customer problems, such as the development of the flash drive to make possible the convenience of portable data.

Market development is new "missions" for a company's products. Ansoff really means that new product uses and applications are discovered and promoted to existing customers. The use of Arm & Hammer Baking Soda as a refrigerator deodorizer is a classic example.

Finally, diversification, a more risky approach, moves the company out of its comfort zone into new kinds of products and markets with which the firm has little experience. Diversification adds new businesses to a company not found in its core industry (Hill and Jones, 2007, 340). These sorts of strategy "jumps" can be immensely profitable but also have a higher-than-average probability of failure because the firm's competencies may or may not be adequate to make such a leap. Companies often see an opportunity in another industry, for example, that seems attractive only because the company does not fully understand the challenges of entering that industry.

Although Ansoff's matrix is quite simple and, as viewed today, rather primitive, it continues to be representative of the broad strategic moves open to companies that wish to grow. An important weakness, however, is that such a matrix is purely descriptive rather than prescriptive. It does not tell a company which of several possible growth vectors would be most profitable, most risky, or most easily implemented. Further, the matrix does not provide any sort of plan for the implementation of any growth vectors that may be chosen.

Porter's List

Ansoff's list was helpful but hardly comprehensive. His focus was in extending the existing strategic direction of the company. In 1980, Michael Porter introduced a different list of generic strategies, which focused on the initial identification of a business strategy (Porter, 1980). Porter theorized that only two basic strategies were available for companies to pursue-low-cost or differentiation. Porter combines these two strategies in the ubiquitous 2 2 matrix format to create the following four options determined by the scope of the firm's operations: cost leadership industry-wide, differentiation industry-wide, cost focus within a particular segment, and differentiation focus within a particular segment.

FIGURE 17.1 Ansoff's growth matrix. (From Ansoff, H. I., 1965. Corporate Strategy. New York: McGraw-Hill. Original source: Table 6.1, 109. Used by permission of the Ansoff Family Trust.) Low-cost leadership is generally recognized as a difficult position to maintain in the marketplace. A firm must have a means for achieving sustainable cost advantage. Michael Dell found it in the personal computer industry by putting together logistical alliances with suppliers and an unprecedented Internet-based distribution channel. Other companies have chosen to produce no-frills products, locate a source of cheaper raw materials, improve the overall efficiency of production, or otherwise reduce overhead, such as outsourcing some functions. However, a low-cost strategy is challenging. Even Walmart, with its highly sophisticated logistical system, no longer claims to be the "lowest" price in town.

Differentiation, on the other hand, offers nearly limitless possibilities. Kotler (2003, 318327) identifies five different bases on which meaningful differentiation may take place: product differentiation, services differentiation, personnel differentiation, channel differentiation, and image differentiation.

Product differentiation can be accomplished by changing the form of a product or adding features. The performance quality of the product can be enhanced and durability may be increased. The product can be made more reliable or easier to repair, thus saving replacement costs. Design is increasingly a factor that adds value to a company's product offerings as, for example, in Italian-designed leather clothing or German-engineered personal appliances. A related notion is style, which is an important aspect of Apple computers, Montblanc pens, and Harley-Davidson motorcycles (Schmitt and Simonson, 1997).

Services differentiation includes ordering ease and accuracy, on-time delivery, timely and accurate installation, customer education with respect to product usage, and follow-up maintenance and repair.

Companies that have very well-trained sales and service personnel may be able to establish personnel differentiation. Lands' End customer service representatives are known for their courtesy and their willingness to go out of the way to assist customers with size, color, and style recommendations.

Image differentiation relies on how the brand's identity is expressed and whether customers develop a strong identification with the company or the brand. Some brands that have established a strong, positive image include Hershey's Chocolate, Coca-Cola, and Betty Crocker. Non-food brands include Mercedes-Benz, Hallmark, and Crayola.

The Resource-Based View

The resource-based view of strategy is primarily based on the analysis of a firm's strengths and weaknesses. This approach draws from three primary research traditions (Barney, 2007, 127169). The first area of study is theories of distinctive competence. Distinctive competence looks at the quality and decision-making skill of the company's general managers who have a very large impact on the company's performance. A second but related area, from a sociological perspective, is the relationship of institutional leaders combined with the firm's organization and structure to generate distinctive competencies.

The second area of study comes from David Ricardo's (1817) work in economics focusing on land uses and the concept of economic rent, "the payment to an owner of a factor of production in excess of the minimum required to induce that factor into employment" (Barney, 2007, 130). For example, a company makes higher profits than its competitors, who are also selling into the same market, because its factory workers have developed production methods with higher productivity rates than competitors. Finally, incorporated into the resource-based view is the notion of firm growth (Penrose, 1959), in which an extended typology of sources of productive growth are enumerated and assessed within the administrative framework that links and coordinates group and individual activities. For example, even within the same industry, one company may have the ability to conceptualize new product ideas and translate those concepts into marketable products much more effectively than its competitors.

Representative of these three areas of study combined, the VRIO framework stands for a series of questions that must be answered about a company in order to determine what strengths are at the company's disposal as well as what weaknesses must be taken into account. VRIO stands for value, rarity, imitability, and organization. Each represents a question with respect to individual resources and groups of resources available to a company, such as whether these resources render a firm capable of responding to threats and opportunities, whether the firm faces cost advantages or disadvantages, and whether policies and procedures are aligned with the firm's use of its resources.

The questions involved in a resource-based analysis enable the firm's strategic planners to identify areas of opportunity that may require upgrading or additional resources assigned. These questions encourage strategic planners to revisit the company's policies and procedures to assess whether, as currently stated and implemented, they support the company's direction and marketplace positioning. Questions on the rarity of resources help determine the exclusivity of the firm's resources, while questions of imitability help discover cost advantages that the company can exploit.

Learning/Emergent Strategies

Mintzberg and Waters (1985) conceive of deliberate versus emergent strategies as two extremes on a continuum that represent real-world strategies. A team of managers may sit down for a strategic planning meeting and come up with a strategy using analytic skills and deliberation. But that team may just as easily make some important errors in judgment that, subsequently, redefine the team's entire strategic plan. In the former case, the planning is largely a priori, structured, and intentional. In the latter case, the resultant strategy may be serendipitous, devised on the spur of the moment under pressure, and as much a surprise to its creators as it was to anyone else. Thus, learning occurs where what was planned does not proceed as envisioned but the outcomes sometimes are better than the planned strategy. Adjustments are made, and the organization moves forward.

According to Mintzberg and Waters, most people tend to treat strategy simply as "an analytic process for establishing long-range goals and action plans for an organization" (1985, 257). However, Mintzberg and his colleagues (viz. Mintzberg, 1978; Mintzberg and Waters, 1982; Mintzberg and McHugh, 1985) conceive of strategy as more fluid than that. Their view is that strategy represents a consistent pattern developed from a stream of organizational decisions and actions followed by corrections. Because of many studies, what has emerged in Mintzberg's view is the categorization of 10 identifiable schools of thought with respect to strategy. Any of these approaches can lead to success or failure, depending on the situation, although, more realistically, they each represent one piece of the totality of strategic management (Mintzberg et al., 1998, 121).

A Summary of Schools of Strategy

Mintzberg and Lampel (1999) distilled the literature on business strategy into various representative schools of thought. They preface their findings with the caveat that each school contributes one perspective or another on the world of strategy, although none offers a comprehensive picture of the reality. The authors identify 10 different schools of thought on strategic management theory, although there is some overlap between schools, especially as cross-fertilization has occurred. The first three are prescriptive, while the latter schools are largely descriptive in their orientation. These schools include: (1) the Design School, (2) the Planning School, (3) the Positioning School, (4) the Entrepreneurial School, (5) the Cognitive School, (6) the Learning School, (7) the Power School, (8) the Cultural School, (9) the Environmental School, and (10) the Configuration School.

The Design School, one of the earliest to emerge, focuses on the ability of senior management to find a workable strategic solution while taking account of internal strengths and weaknesses in the light of external threats and opportunities. From this combination of internal capabilities and constraints coupled with external contingencies, a strategy is fitted or designed to best serve the situation in which the organization finds itself. There is no strict, particularly analytical, or structured formal process, and the central figure in strategy development is the senior executive officer. Intuition of top management is important to the success of the strategy, which is deliberately kept as simple as possible and focused. Until the 1970s, this was the dominant view of strategic management with lasting influence even today.

Ansoff was an important early influence for the Planning School, which is characterized by many of the assumptions of the Design School coupled with a formalized, analytic approach to devising business strategy. This process is intentionally step-by-step, supported by techniques that zero in on meeting specific objectives, budgets, and program details.

The Positioning School may be the school that most people think of when they think of management strategy. Given impetus by Porter's work as well as the Boston Consulting Group and the PIMS project,1 this school traces its history back through military strategy to Sun Tzu circa 400 BC Advocates of the Positioning School believe that strategy can be reduced to generic positions, each representing a formalized compilation of characteristics and industry situations for which generic strategies may be applied as starting templates. The approach is highly analytical; therefore, it is hardly surprising that TOC-with its analytical disposition-has used this approach in identifying and describing its litany of "marketing solutions" according to situational characteristics of the company's milieu.

The Entrepreneurial School, like the Design School, focuses on the top executive, but the emphasis is on the cachet associated with a talented individual's mysterious intuition. Rather than using structured methods of developing strategies or analytical means to devise the "right" approach, these strategists focus on the charisma and talent of a central forceful leader who can use his or her creativity to the organization's ultimate advantage in the marketplace. Moreover, the leader exercises tight control over the details of an implementation.

The Cognitive School is comprised of two important orientations. Largely academic, students of this school examine the cognitive processes that people use to arrive at strategies, processes such as mental mapping and conceptual modeling. This school looks at how people reason and arrive at their individual perspectives. The focus is on cognition as information processing, how people are influenced, and what schemas they use to interpret the world. More recently, another view has emerged that focuses on strategies as creative interpretations of reality rather than the objective rendering of reality.

The Learning School, through the work of Lindblom (1959), Quinn, (1980), Mintzberg (1978), Mintzberg and McHugh (1985), and others, sees strategy development and implementation as a less structured and intentional process. Rather, strategies evolve incrementally as learning takes place. Formulation and implementation merge, and the result may be something unexpected and creatively discontinuous.

Whether a strategy develops within a firm or as a reaction to forces external to the firm, the Power School views the strategy as an essentially political process. Bargaining, persuasion, and encounters between power dispensers within the organization lead to strategies that are in the power network's best interests. The organization thus moves forward based on which powerful individuals and their priorities prevail.2 Mintzberg and Lampel (1999) view the Cultural School, a thin stream of research within the academy, as a mirror image of the Power School. Where participants in the power school jockey for power over others-a divisive process-participants in the Culture School aim for collaboration, continuity, and cohesion within the organization. Thus, highly discontinuous change is discouraged, being seen as leading to dysfunction within the company.

The Environmental School may not be, strictly speaking, a school of strategy theory. The focus of this stream of work is on how companies attempt to make compromises with their environments, maneuvering for advantage and success within the confines of external pressures. Mintzberg and Lampel term this school a "hybrid of the power and cognitive schools (1999, 25)."

Finally, the Configuration School encompasses two distinct programs. The academic focus looks at organizational configurations, the circumstances in which these configurations evolve and prosper, and the differences according to specific operating conditions, such as a service organization versus a start-up manufacturing organization (Mintzberg, 1979; 1983). The second focus is more practitioner-oriented and deals with how organizations transform themselves, with particular emphasis on change management and the process of moving from one configurative posture to another.

As Mintzberg and Lampel (1999) point out, these schools often define strategy narrowly, failing to take into account aspects of strategy and factors that impact strategy not represented in their respective models. Thus, companies may adopt a particular approach to strategy development and execution that leaves out important considerations for that company. For example, large companies in mature markets may not fare well following the entrepreneurial school of strategy. It is likely that the situation for a large firm is too complex for one person to have a comprehensive understanding of all factors that contribute to meeting the company's objectives and, at the same time, all the strategic answers for the company's ongoing success.

Marketing and Strategy

To understand how marketing and strategy fit together, one must understand something about marketing and its scope. In recent years, often marketing erroneously has been conceived of as primarily promotion (Perrault et al., 2008, 7). Although advertising and promotion are certainly areas of importance to marketers in persuading customers of a product's value, a view of marketing that sees the promotion function-advertising, selling, sales promotion-as the primary thrust of marketing is far, far off the mark.

The official (and latest) definition of marketing found on the American Marketing Association's Web site is, "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large" (American Marketing Association, 2007). This definition, nearly all-inclusive of business activities, reflects the evolution of thinking about marketing that was broad even in 1952 when General Electric issued its annual report and stated the following: [The marketing concept] introduces the marketing person at the beginning rather than at the end of the production cycle and integrates marketing into each phase of the business. Thus, marketing, through its studies and research will establish for the engineer, the design and manufacturing person, what the customer wants in a given product, what price he or she is willing to pay, and where and when it will be wanted. Marketing will have authority in product planning, production scheduling, and inventory control, as well as sales, distribution, and servicing of the product. (1952, 21) An even more restrictive conception of marketing as the four Ps-product, price, promotion, and place (distribution)-which has been around since the early 1960s, demonstrates that the marketing function has long been conceived in terms of new product development and refinement, pricing, logistics, and distribution, as well as advertising, sales, sales promotion, and package design. This was not to suggest that marketing was solely responsible for product design and production, meeting shipping dates, or setting prices. Rather, the idea was that marketing represents the customer to the company as well as the company to the customer and is therefore responsible for the strategic alignment and coordination of all the factors that attract customers and preserve customer relationships (Perrault et al., 2008, 3540; Pride and Ferrell, 2008, 37).

In 1969, Kotler and Levy's seminal article, "Broadening the Concept of Marketing," appeared in the Journal of Marketing. Therein, the authors stated, "Marketing is a pervasive societal activity that goes considerably beyond the selling of toothpaste, soap, and steel" (1969, 10). In short order, marketing experts accepted the notion that political candidates market themselves for votes; Hollywood markets celebrities to sell movie tickets; ordinary people market themselves to prospective employers; charities use marketing activities for fund-raising and soliciting volunteers; and organizations market ideas, such as "fasten your seatbelt" and "don't drink and drive." From the 1970s on, applications of marketing expanded to a variety of non-business contexts.

Moreover, in today's marketplace, the concept of customer relationship management (CRM) demands that marketing be involved in technology as well (Greenberg, 2001, 143). Every single point of contact between the company and the customer is a marketing opportunity, and technology now plays an important role in facilitating companycustomer communication and exchanges.

What Is Marketing Strategy?

In light of the scope of marketing discussed previously, one may well say that there is little difference between business strategy and marketing strategy. Ultimately, much of what an organization does strategically will have direct or indirect impact on the firm's ability to cultivate and sustain customer relationships. A small stream of research has even emerged in marketing called internal marketing to address employee issues. This work does not take the place of the huge body of human resource literature; rather, it emphasizes those issues that affect employees in ways that are then secondarily transmitted to customers (Flipo 1986; Adomaitiene and Slatkeviiene, 2008). For example, unhappy employees are more likely to give customers poor service.