Strategic choice

The primary purpose of a strategy is to provide the organisation with a sustainable position of advantage within a competitive environment. In this topic we will examine the general strategic choices an organisation can make, which is the first stage in defining the strategy it will ultimately follow. We will explore a number of different approaches including: (a) using the organisational purpose, vision and mission to make decisions about strategic choices, (b) focusing directly on achieving a competitive advantage, (c) competing by developing the organisation's core competencies.

The organisational purpose is a reflection of the organisation's stakeholders' needs and their relative importance. Stakeholders' needs are usually varied and often conflicting. As well as stakeholders' needs, its purpose may also reflect basic internal considerations, such as the organisation's code of ethics or the preferences of the Board. The mission and vision (and organisational purpose) provide an important foundation for generating strategic choice. The vision, mission and organisational purpose define what the organisation should be doing and set the context for what the organisation considers to be short- and long-term success. We define the vision as a statement of where the organisation believes it will be in the future.

The definition of the organisation's business has much in common with the organisation's mission. It defines the markets in which it operates and the principal ways it competes. An important part of this process is the organisation questioning its accepted understanding of what business it is in. Defining the business in a broader sense may open a path for the development of new competencies outside the normal areas.

Markides (2000: 41) suggests a four-step process to define the business that the organisation considers itself to be in:
1. List all possible definitions of the business.
2. Evaluate each definition by asking whether it will provide a particular advantage over competitors or forces impacting on the organisation.
3. Choose a definition. This choice is crucial because it sets the direction the organisation's strategy will eventually take.
4. Finally, ask the question: what would the strategies of competitors be if they had to redefine the business? This will reveal what competitors may see as necessary or unnecessary.

Organisational purpose is frequently expressed using the following variables:
1. the target customers or recipients of the organisation's outputs
2. the type of people employed by the organisation
3. the ethical position of the organisation
4. the size and scope of the organisation
5. the range of products or services produced by the organisation
6. the structure of the organisation
7. employee conditions and relationships
8. quality and cost.

Establishing sustainable competitive advantage requires the development of the capacity to leverage the core competencies of the organisation—its capabilities. Hamel and Prahalad (1994: 15) suggest the following approaches for establishing sustainable competitive advantage:

1. Being smaller—the ability of the organisation to control costs and efficiently use resources. This includes administrative innovation, cost management, restructuring and maintaining an appropriate organisational size.
2. Being better—the ability to improve processes, driven by the desire for continuous improvement. This implies innovation and efficient management of core processes.
3. Being different—the ability to be innovative through reinventing the business concept and its appeal to customers. This implies the formulation of innovative and effective business regeneration strategies.

Hamel and Prahalad (1994: 45) suggest three ways in which an organisation can seek to establish a leadership position in its industry.

1. Competition for industry foresight and intellectual leadership. This involves gaining an advantage through developing an understanding of the industry. 2. Competition to reduce development time and costs. The organisation will gain an advantage if it has the competencies to mobilise knowledge and technology to rapidly turn concepts into workable products
3. Competition for market position and market share. Having a large portion of market share and a well-respected brand enables the organisation to take an industry leadership role.

An organisation's chosen strategic direction will determine what competencies it will require. A competence–product/market matrix, as depicted in Figure 5.1, is useful for understanding the strategic options available when using or developing required competencies.

Core New Leadership and Retention Mega-Opportunities
Competencies Existing Fill in the Blanks White Spaces
Existing New
Market-Product Share

The lower left quadrant represents the organisation's current business. The upper left quadrant represents an area where the organisation has to seek new competencies that will help it to preserve its current position or to distinguish it as the leader in its current area of business. In this quadrant one must also question which competencies are, or will become, obsolete through replacement by new competencies. The lower right quadrant represents opportunities, or 'white spaces', for the organisation that fall outside the scope of its current business. The strategic objective here would be to move beyond current products and services by finding opportunities for extending the application of existing competencies into new application areas. The upper right quadrant represents uncharted and potentially risky but very rewarding business opportunities.

A number of strategic possibilities apply at the corporate level. Your textbook divides these into four groupings:
1. those designed to increase market share
2. those designed to maintain market share through renewal
3. those designed to provide entry into new similar markets, such as international markets
4. those designed to support movement into different markets (diversification).

Frequently, business-level strategic choices fit into one of the generic and well-recognised forms of strategy. Five generic strategies are:
1. differentiating the business from other competitors while simultaneously offering a broad range of products or services (e.g. successful, high profile retail chains)
2. supporting a large range of products and services, but only differentiating on the basis of cost (e.g. successful discount retail chains)
3. differentiating the business from other competitors in a range of areas while, at the same time, only offering a very narrow range of products or services (e.g. specialist art shops)
4. offering a very narrow range of products and services differentiated only on the basis of cost (e.g. discount shoe shops)
5. offering a reasonable range of products and services, lower than normal prices and some other forms of differentiation, such as quality (e.g. retail chains like Target in Australia).

Technological change can affect industry-wide entry barriers by protecting individual organisations through capital barriers to entry, economies of scale, in-house knowledge, enhance or eliminate opportunities for product differentiation, affect distribution through allowing conventional distribution channels to be circumvented.

Technological change can be used to support strategic choices by shifting the bargaining relationship between an industry and its customers. Technology can also be used to support strategic choices and can affect the bargaining relationship between an industry and its suppliers. Technological change can allow alternative strategic choices by supporting the introduction of new or substitute products/services. Technology is very important in supporting strategic choices that are affected by competitor rivalry. Technological change can raise or lower fixed costs and hence affect price cutting.

Technology can increase industry boundaries in a variety of ways and, as a result, provide different strategic choices. It can reduce transportation or other logistical costs, enlarging the geographic scope of the market. Technological change that reduces the cost of responding to national market differences can make global industries out of domestic ones.



Our conceptual framework is grounded on the long lasting debate in the strategy literature about the relationship between structure and strategy. The process perspective suggests that an organization's strategy is conditioned by its internal structure (Bower, 1970). In this view, managers are constrained in their decision-making process by how the firm is organized; due to the fact that an organizational structure is a lot less dynamic than its strategy (Hall & Saias, 1980; Prahalad & Doz, 1981). Conversely, the contingency perspective suggests that structure follows strategy (Chandler, 1962; Ozsomer et al., 2000), and that no single strategy is universally better than others, but rather, performance outcomes will depend on the structure used to implement the choice of strategy (Roth & Morrison, 1990). In this view, a firm's competitive advantage is attained by first developing a corporate strategy aligned with market and industry conditions and then adapting its structure to best pursue the chosen strategy (Galbraith & Nathanson, 1978; Lawrence & Lorsch, 1967).1 Although these perspectives were initially positioned as competing models, most management scholars have adopted a constraining view of complementarity along a temporal dimension. That is, the contingency approach requires a long-term vision and is appropriate at the corporate level, because it takes time and resources to change an organization's structure. However, once the structure is in place, the continuous changes in strategy and tactics required for it to remain aligned to market and industry conditions will be constrained by the organizational structure.