Connotation And Essence Of The Strategy

Published Date: 02 Nov 2017

Chapter 1

In all enterprise concept, the strategy is the most attention one. It is also caused up to the concept of justice. Almost all people have stressed the importance of strategic. But almost no one has exactly the same understanding of it. It is difficult to reach a consensus on the strategic concept. The main reason there are two aspects: on the one hand, there is to much push factors on strategic. The other hand, the strategy must be contingent, different industries, there is a difference. Here in order to make a clear introduction of strategy, author dividend this content into following parts:

Connotation and essence of the strategy,

Research status enterprise strategic management theory.

Connotation and essence of the strategy

Strategic Management is defined as: the enterprise to determine its mission, according to the external environment and internal conditions to set the strategic goals of the enterprise, in order to ensure the correct implementation and realization of the target make the plan and rely on internal capacity to make implementation of the planning and decision-making, control as well as in the implementation process of a dynamic management process [1] .

American General Electric Company (GE) former CEO J. Welch said that: the strategy is actually to make a clear choice on how to start the competition. Simply put, it is an action program, which need to revisit and revise based on market changes. Due to that the strategic management is to develop the basic planning, establishing the approximate direction and put he right people in the right position.Then improved and implement it. [2] 

Strategic management guru, the professor of Harvard University M.E. Porter in his famous article "What is the strategy" [3] the paper stressed that strategic is not operational efficiency. Operating efficiency is an enterprise engaged in the same business activities better than competitors. By authorized to operate, improving quality, change management, organizational learning, business outsourcing and virtual organizations will lead the productivity border offshoring. This can improve the operational efficiency of enterprises. It is also a necessary condition to get the rear profits. But this is usually not a sufficient condition. Because competitors can quickly imitate others investment, management skills, technology and meet customer needs practice. It can improve the operating efficiency of the entire industry, but no advantages between improving the relative levels of the enterprise. Benchmarking often lead to strategic convergence. As competitors in quality improvement, shorten the product life cycle and improve distribution channels imitate each other, strategic convergence will lead to a race of many enterprises in the same starting line. This easily leads to vicious competition. So M.E. Porter thought that the strategy is to build on the unique operating activities. The strategy needs to be different [4] .

Prof. G. Hamel who is referred to as "the authority of global strategic management" said: competition in the future is to continue to create and grasp business opportunities in emerging competition. It is the competition redivision of the new competitive space. Enterprises need to compete with the key to success is to do two things: a first reshape space which you present at the competition, to change the existing rules of the game, it means to change the basis of competitive advantage of the existing industry. But to create a new space to meet the needs of customers. In other words, successful enterprise is the destroyer of the rules of the game or the rules of the game makers, rather than the followers of the rules of the game. [5] In fact G. Hamel’s core strategic thinking is the reconstruction of competition and create the future. Roughly the same view of strategic with M.E. Porter. Corporate strategy is to engage in a completely different business competitor or engaged in some of the same business in a completely different manner. M.E. Porter's point of view is only suitable for the industry clearly defined the era and G. Hamel’s view suitable for industrial limitations fuzzy era.

From the above outstanding entrepreneurs and leading academics’ strategic interpretation. The Author believes that: firstly in business the strategy first is about choice and trade-off, these choices and trade-offs including: product and market scope, growth direction, competitive advantage, collaboration, self-produced or purchased and so on. Secondly, strategy is a question of differences. It means choosing a different set of activities to provide unique value. Thirdly the strategic goal is to build a sustainable competitive advantage. On the one hand, this advantage should be from the overall activities of the enterprise, rather than part of the results of the activities. On the other hand to see this dominant sustainable must integrate all the activities of the enterprise, they have internal consistency and has a role in promoting mutual. Fourthly the operating efficiency is not equal to the strategy. Although the strategic and operational efficiency are the conditions to achieve excellent performance, but both works are not the same. Strategy means conducting similar activities, it is the performance of the enterprise to better than competitors. Fifthly, the strategy has a dynamic nature. When the industrial structure such as supplier, enterprises themselves, competitors, customers, substitutes, complementary enterprises and so on. When any one of them occurs tenfold speed change, there will be a strategic turning point. The original strategy will fail at that moment, then must change strategy. Of course the best timing of strategic change should be selected in the company is still sound, the external business still be able to protect your internal experiment new mode of operation, this will better protect the company's strength, the interests of employees and strategic position.

In short, the corporate strategy is to include a combination of a series of competitive activities and business methods. Managers in order to attract customers to successfully compete and to ensure that the goals of the organization.

Research status enterprise strategic management theory

In today’s society, the pattern of the world economy has undergone profound changes. The changes in the business environment have become increasingly evident. Strategic management research trend to focus on the survival and development of enterprises in the turbulent environment, as well as the enterprise human factors, cultural factors and knowledge factors, as well as the research methods the direction and effectiveness.

Corporate strategic management theory in the 1990s, mostly built on the basis of confrontation competition, they are more focused on the discussion of competition and competitive advantage. In the mid of 1990s, in a new environment, companies come to realize that the competition is for the survival and healthy development, they must go beyond the strategic logic of the competitors in the center. Around this new focus there have been some new theory:

Theory of customer value center,

Business ecosystem theory,

Social-network method analysis.

Theory of customer value center P. Kotler called Customer Value (CV) the customer delivered value. P. Drucker observed 40 years ago that company’s primary task is to "create a customer". E.D. Bono thinks that the traditional competitive strategy logic is a sum-zero game. The competition is a dangerous concept. [6] 

Make customer value as the center of the strategic logic extended beyond the traditional strategic theory. When the customer value has become the rules of the competition among enterprises, formulate rules than those who follow the rules to know the information and resources have to be much more, strategic logical starting point determines the victory or defeat. Enterprises first start from the cultivation of industrial seer, then transfer of the core of the strategy, beyond the assets and capabilities for strategic decision-making and break the practice for customers. Around the customer value reorganizing its strategic logic framework.

But this kind of customer oriented strategic theory applies to structured into the industrial market. To an accurate and comprehensive understanding of customer needs is not easy, customer oriented strategy is essentially a catch-up and defense strategy. Therefore, in order to achieve a leading position in the industry of the future, companies must go beyond the customer oriented, not just the attention focused on customer needs, change from passive to follow for the initiative.

Business ecosystem theory in a market economy, Darwin’s natural selection seems to merely act as the most appropriate company or product can only to survive. The process of economic operation is the expulsion of the weak.

M. Stanfor gives the concept of "business ecosystem" breaking the traditional strategic theory limits by industries. This concept standing the balanced evaluation of the level of the enterprise ecosystem divided business activities into exploration, expansion, leadership and to update four stages. [7] Part of the business ecosystem of theory is very rich, it suggested that senior managers often consider the business ecosystem and their own position from customers, markets, products, processes, organization, risk borne government and society seven. To create a new business model.

Social-network method analysis the blend of research ideas and sociology driven the rise of the social network analysis method. That group research organization being embedded in a complex network of social relations. They think the relationship between enterprises is a social network relationships the internal structure can also be considered to be a social network of relationships. Enterprise groups as well as some of the other theory is that the modern enterprise between market and enterprise organizations can also be seen as a form of network. The social relationship is the basic concept of network analysis it has two types: social capital and structural hole theory. Social capital theory is that the enterprise development needs to continue to expand and the accumulation of social capital. A structural hole theory that The enterprise development relies on the blank areas in the development of their social relations in which the network.

1.2. Strategy and business model

The business model and strategy are different, the main difference between them is that the business model is the value creation oriented and the strategy is to oriented create a competitive advantage. However, from the progressive process of the business model concept, both guides should be interdependent and undivided. In order to make this part introduce strategy and business model, author divide this content into following two parts:

Connotation and essence of business model,

Connection between business model and strategy.

Connotation and essence of business model

The definition of the business model is to maximize customer value, enable businesses to run inside and outside elements together. To form a complete high efficiency of running the system which has a unique core competitiveness, also meet customer demand, achieve the optimal form of CV. At the same time allowing the system to reach the goal of sustained profitability overall solution. [8] 

The business model is a simplified business logic, there are some elements still need to use to describe this kind of logic:

Value proposition,

Target customer segments,

Distribution channels,

Value configuration,

Core capabilities,

Partner network,

Cost structure,

Revenue Model.

The value proposition is the company through the value of its products and services that can be provided to consumers. The value proposition is to confirm the practical significance of the consumers. Target customer segments is the definition of consumer groups also called market segmentation. Distribution channels are the customer relationship management is also related to this. Value configurations is configuration of resources and activities. Core capabilities are means ability and qualifications needed to execute its business model. Partner network it describes the scope of the company's business alliance. The cost structure is the use of the tools and methods of monetary described. Revenue Model is the way of company to create wealth through a variety of revenue flow. [9] 

The design of the business model is an integral part of the business strategy. The implementation of the business model for the organizational structure of the company including institutional settings, workflow and human resources and systems including IT infrastructure and production lines is part of a business operation.

The author believes that through a comparative analysis enterprise business model includes at least three levels of meaning: firstly the mode of operation of any organization the implicit assumption are is established prerequisite, how to run a continuity of the environment, market and customer demand for property in a period of relatively stable at competitive and so on. These conditions constitute the rationality of the existence of the organization mode of operation. Secondly the mode of operation of the organization is a system, including the relationship between the structure of the organization structure and organization of the various elements of the external. The various components of these structures have inherent link, they interact to form a wide variety of sports mode. Thirdly the organization mode of operation included innovation strategic change. It is a continuum of institutional structures that enable organizations to get the long-term advantages.

Thus the author defined: the business model is an organization base on a clear external assumption, the premise of internal resources and capabilities, to used for the integration of the organization itself, customers, supply chain partners, employees, and shareholders to get the excess profits of a strategic innovation intent.

Connection between business model and strategy

J. Magretta thinks that the business model concept originated in the extensive application of electronic spreadsheet software. It enables planners can easily modify the parameters based on different assumptions to get different programs. [10] Now, the business model has gone beyond the level of this technology. It is increasingly concerned about the strategic content such as core resources provide value, network of relationships and the target market and so on. This makes the business model and strategic trend to get integration. Although the vast majority of scholars recognizes that this integration but for the view of the degree of integration, there are differences.

H. Chesbrough thinks that business models and strategies are different in the following three aspects. Firstly the business model is starting to create value for customers and to build around the value. While the business model also concerned about the value of the acquisition, but the value of the acquisition and the sustainability should belong to the strategic areas. In addition when the competitive threat of potential competitors in the corporate income in a central position strategy, but the business model is not in the center. Secondly the business model is not to focus on whom they create value for. Thirdly the structure of the business model assumes. The information act limited cognitive role and prejudices by enterprise early success. The strategy usually requires careful analytical thinking and chaos and assume that there are a lot of reliable information on the market. [11] 

A. Afuah makes a distinction between strategy and business model. He thinks that strategy more focused on win in competition, acquire excellent performance and achieve their goals. To some extent, the strategy is about performance and the business model is about earn money. But he also mentioned that the business model should include strategic and operational effectiveness of the profit-oriented and is closely related to the profitability. [12] 

Despite these above views discrepancies, but all stressed the strategic competitive characteristics, through establish and maintain a competitive advantage then beat competitors and get excellent performance, this is the main purpose and content of the strategy. But the business model describes how the every business parts constitutes a integral system. Does not put the affect the performance factor which is competition into account. To some extent, strategic focus on corporate and external competition and competitive strategy, business model focus on internal business and competitive basis and foundation. The strategy emphasizes the best competitor to get profit, business model emphasizes the enterprise itself whether there is huge profit potential.

However, more often business models and strategies are together. The business model emphasis on value creation and access. Strategic through the value proposition want to provide customers with unique value. Both main attention on value creation led to many of the elements of the business model and strategic elements are same. Elliot said: "The corporate strategy detailed explanation of how the business model used in the market to make a difference from competitors." [13] This shows that the strategy makes differentiation between enterprises for a business model in the external market, thereby exhibiting excellent performance. Strategy and business model is the two sides of the enterprise. There are no alternative relations between each. J. Magretta expressed a similar view, he said: "The strategic thinking begins with a good business model. Business model as a system is complete the core economic relations of a specific target for the organization. New business models after change the economics of the industry is difficult to be copied, itself will be able to create a strong competitive advantage." [14] 

Based on complementarity and integration of the business model and strategic relationship author believes that if the enterprise is engaged in a particular area of the commercial activities have been for some time, when it is facing a strategic inflection point and need to reposition and change the original strategy, it's best to start with the original business model innovation. Because the essence of the strategy which exist in the differences of activities. To through business model innovation is to choose to perform activities in different ways, or perform different activities with competitors. Otherwise, the strategy is just a nice slogan and can not sustain the test of competition. Another situation is if the enterprise is in the inception phase, it has a novel but not the perfect mode of commercial operation. It best should first clear their strategy and further integration of the original business model based on this strategy, make it has internal consistency and can promote each other’s role. This can give full play to the business model the first-mover competitive advantage.

1.3. The character and principles of strategic management

Strategic management involves not only the strategy development and planning, also implemented to develop a strategic management. So it is the management of a whole process. Strategic management is not a static, one-time management, but a cycle, the process of reciprocating nature of the dynamic management. It is necessary to according to changes in the external environment, the internal conditions, as well as the feedback of the results of the implementation of the strategy to repeat a new round of strategic management process, it is an uninterrupted management. In this part the author divided the content into three parts:

The characteristics of strategic enterprise management,

The principles of strategic enterprise management,

Content of strategic enterprise management.

The characteristics of strategic enterprise management

Strategic management of enterprises is at the macro level by means of analysis, forecasting, planning, control, to achieve full use of the enterprise’s human, financial, material and other resource, in order to achieve optimal management, improve economic efficiency. Corporate strategic management is the whole process of design, selection, control and implementation of the corporate strategy, until it reaches the target of corporate strategy. Strategic management involves the development of enterprises and major long-term problems. Such as enterprise business direction, market development, product development, technology development, institutional reform, restructuring of the organization, a major technological innovation, funding financing and so on. Strategic enterprise management has the following characteristics: [15] 

Globality,

Chronicity,

Authority,

Environmental suitability.

The globality of the corporate strategic management includes two meanings: firstly, the corporate strategy as a process to be managed. Secondly, it is regarded as a single undivided whole. Strategic enterprise management stressed that the overall optimization

Instead emphasize the importance of a strategic unit of the enterprise or functional departments. Strategic enterprise management through formulates the corporate purpose, goals, strategy and decision-making to coordinate enterprise strategic business units and the activities of the department.

Chronicity shows as the strategic enterprise management is concerned with the development of the corporate long-term, stable and high-speed. The time span of the corporate strategic management generally in more than three years, within 5-10 years.

The strategic management attention to business leaders in accordance with certain procedures to make a choice and put into the process of the implementation of the major issues of the enterprise. The corporate strategy is a necessary precondition for effective business. To give full play to the function of the overall effectiveness of the strategy, it must be authoritative.

Environmental suitability means that strategic enterprise management attention is paid to the relationship between the enterprise and its external environment, in which its purpose is to enable enterprises to be able to adapt and take advantage of changes in the environment. The enterprise is an open part of the social indivisible, its existence and development in large part by its external environmental factors.

The principles of strategic enterprise management

Strategic enterprise management helps enterprises path to success. But incorrect strategic management sometimes will be counterproductive. Therefore, the strategy needs to follow the principles of scientific management: [16] 

Environmental suitability,

Whole process control,

Overall optimal,

All staff participation,

Engineering Change Order(ECO),

From the outside inwards.

Environmental suitability principle shows that the influence of the environment will have a large extent affect the business objectives and direction of development. To formulate the strategy must focus on the interaction of the enterprise and its external environment.

Whole process control principle shows that the strategy is a process, it includes strategy formulation, implementation, control and evaluation. In this process, all stages must mutually supportive and complementary. Ignore any one stage, corporate strategic management are unlikely to succeed.

Strategic management to view business as an entirety. To emphasize the overall optimal, instead of a local optimum. Strategic management does not emphasize the importance of a local enterprise or department, but through formulating enterprise aims, objectives to make each unit to coordinate the activities of various departments, so that they form a cohesive force.

Strategic management is an entirety, it has a formulation, implementation, control and the whole process of the revised. Strategic management is more than just a matter of corporate leadership and strategic management department, in the whole process of strategic management it needs full participation of enterprises.

ECO means that the strategic management involves greater time span, generally in more than five years. The strategic implementation of the process is usually divided into a plurality of stages. Therefore, it needs a step-by-step implementation of the overall strategy. In the process of the implementation of the strategy, environmental factors may change. In this case, the enterprise constantly tracking feedback in order to ensure strategic adaptability.

A superior strategy formulation is from the outside inwards rather than from the inside out.

Content of strategic enterprise management

Strategic enterprise management includes the following: [17] 

Strategy formulation,

Strategy implementation,

Strategic control.

To formulate the strategy is based on: firstly, to the analysis of the external environment: intensive analysis of the external environment is an important foundation of formulating the strategy correctly. Due to that enterprise needs collect and accurate grasp of a variety of external environmental information timely. For example, the national economic development strategy, long-term planning and annual plan for national economic and social development, industrial development and adjustment policies, national science and technology development policy, macro-control policy, the sector of the industry and the region’s economic development strategy, customer, competitors, supply manufacturer's circumstances, cooperative unit, potential competitors and so on. Secondly analysis of the internal conditions: analyze the enterprise’s quality of personnel, technical quality and the quality of management, production, supply, marketing, human capital, material status quo and the status in the industry and so on. An enterprise must identify the strengths and weaknesses of itself. Strategy formulation generally consists of the following procedures: a clear strategic thinking, analysis of the external environment and internal conditions, determine the strategic objectives, to formulate strategic objectives, to clarify the strategic focus, to formulate strategic responses, for an overall balance, program and strategy evaluation.

Strategy implementation shows that for effective implementation of corporate strategies. On the one hand to rely on all levels of the organization and staff tie and actively work. On the other hand, the comprehensive plan for production and operations,various professional plan, budget, specific job plans and so on, to the specific implementation of the strategic objectives.

Strategic control is to compare the results achieved by the process of the implementation of the strategy to actually achieve the expected strategic objectives, evaluation of the compliance degree and analysis of its causes. Take timely and effective measures to correct the deviation, to ensure the realization of the strategic objectives.Practice shows that the implementation of target management is an effective method for the implementation of the strategy implementation and strategic control. According to the changes in the market to make strategic adjustments timely. Establishing an early warning system for tracking and monitoring the changes in the market, focus on enterprise development and direction, specialization and diversification choice, product structure, capital structure and financing of the way, scale and efficiency priorities for continuous research and strategic restructuring, make the development of the enterprise has always been able to adapt to market requirements, to achieve the purpose of controlling the market.

Finally author wants to add one more important part of strategic management is strategic guiding ideology. It is the basic idea of the guiding strategy formulation and implementation. It mainly includes the following aspects: firstly is market oriented demand-driven, try to meet the needs of society. Secondly strategy need rely on the variety, quality and cost to win. To adapt to the shift of economic growth mode from extensive to intensive. Enterprises should change to extensive management, steering meticulous management, efforts to improve the technological content and added value, to ensure and improve product quality, reduce product costs. Thirdly enterprise needs optimum combination and rational allocation of the various elements of the production and operation to achieve the overall system optimization. Try to improve the economic efficiency of enterprises. Fourth in the fierce market competition, enterprises need to fully mobilize and use of the various resources, to survive and development in the competition. Fifthly to development and implementation of corporate strategy must have a long-term point of view, it must avoid eager for quick success and instant benefit. Enterprise needs transforming connotation constantly, intensity of technological transformation and enhance enterprises stamina. Finally enterprise building a people-centered management, embody respect truly, understanding and caring for people, fully rely on and mobilize the enthusiasm of all employees. To achieve the strategic goals of the enterprise.