The framework for strategy analysis

Published on February 27, 2022   4 min

Other Talks in the Series: Key Concepts: Introduction to Strategy

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Hello, and welcome to this series of introductory talks on business strategy. My name is Robert Grant. I'm a professor of strategic management at Bocconi University in Milan, Italy. I'm also the author of Contemporary Strategy Analysis, a leading strategic management textbook used in business programs throughout the world.
Why do firms need strategies? Firms need strategies because sound strategies could help them to be successful. Why is that? First, a strategy improves the quality of a firm's decisions. It does so by acting as a guideline or a heuristic, thereby limiting the range of decision alternatives the firm needs to consider. Recently, Elon Musk revealed that during the difficult days that Tesla experienced, he had approached Tim Cook, the CEO of Apple, to ask if Apple would acquire Tesla. Tim Cook, however, would not even meet with Elon Musk. Now, why was this? My guess is that Tim Cook was reflecting on Apple's strategy. Apple is a developer of products. It's a marketer of products. It does no manufacturing. Tesla, on the other hand, is a manufacturer of electric vehicles, so there was no match there. More recently, Apple has revealed that it is negotiating an alliance with Hyundai to develop autonomous electric vehicles. This is much more consistent with Apple's strategy. Apple can do the design, provide the software, and contribute to the marketing. Hyundai could deploy its manufacturing expertise. Second, strategy improves coordination. The whole process of creating a strategy can build consensus between the different members, particularly the top management team of the company. Then, once the strategy has been agreed upon, its dissemination to the rest of the organization allows everyone in the organization to understand what that strategy is and to ensure that their decisions are consistent with the overall strategy of the firm. Third, strategy provides motivation to the organization. The strategy could establish a target for the future to challenge and motivate the members of the organization. Back again to Elon Musk and Tesla. Musk has recently announced the goal of producing 20 million electric vehicles by 2030. The issue here is not the feasibility of this, but the fact that setting this strategic intent provides motivation to the entire organization.