Theory of Constraints Handbook - James Cox Iii [344]
What Is a Business Strategy?
According to Drucker (1994), a theory of business is comprised of three parts. These include (1) assumptions about the environment in which the business operates or intends to operate, including markets, customers, technology, and societal structures in general; (2) assumptions about the specific mission that the company has undertaken; and (3) assumptions about the core competencies needed to execute the company’s mission successfully. Underlying these assumptions is the notion of integrative ability that allows a company to bring many and widely disparate pieces of information and skills together to form a cohesive implementation plan. Thus, strategy for Drucker is implicitly—if not explicitly—an ongoing process, continually revisited, refined, and updated to address each of these three parts.
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