Analyzing the Purpose of Strategy in Modern Business Practices

This essay examines the purpose of strategy in business, tracing its evolution from a focus on shareholder value to a broader consideration of stakeholder interests. It defines strategy through the lenses of Mintzberg and Porter, highlighting the shift from deliberate planning to emergent adaptation. The essay discusses the impact of corporate raiders and the rise of shareholder capitalism, followed by a necessary transition toward stakeholder capitalism due to economic insecurities and declining wages. It emphasizes the importance of identifying strategic and operational issues to maintain a competitive edge. The author argues for an emergent view of strategy, citing IKEA's adaptation in the Chinese market as an example. Ultimately, the essay concludes that a successful strategy must adapt to environmental factors and address the interests of all stakeholders, not just shareholders. Desklib provides access to similar essays and solved assignments for students.

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The Purpose of Strategy
Student
Institution
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The Purpose of Strategy
A business aim may be defined as the goal an enterprise intends to achieve. A
fundamental aim of all business organizations is to add value, and for private companies, this
entails making profits. Other strategic aims of businesses include market leadership, expansion
and brand building. Besides Taiwo, Agwu & Lawal (2016, p. 130), explains that the primary
purpose of an organization should be in line with the value and expectations of the shareholders,
and must find answers to two questions- what the business is and for what reason the business
was created. Although a business aim and purpose may be used interchangeably, a business
purpose mainly encompasses a detailed representation of the steps a business plans to take to
achieve a defined aim.
Businesses exist to achieve particular aims and objectives. Therefore, every business
organization must come up with an outline of how it intends to accomplish its purpose. Such a
framework is called a strategy. In his book published in 1994, Henry Mintzberg defines strategy
as a plan, a pattern and a position (Anwar, Shah & Hasnu, 2016, p. 102). As a plan, a strategy
outlines the means used by a firm to get from one state to another. As a position, strategy reflects
the decisions made by a firm to offer particular services or products in specific markets. Besides,
a strategy may be defined as a pattern in actions over time. For example, a firm may adopt a
cost-leadership, differentiation or high-end strategy.
A good business strategy should enable an organization to achieve a competitive
advantage over other firms. Cost leadership is one of the strategies that can allow an organization
to be more profitable compared to its competitors (Anwar, Shah & Hasnu, 2016, p. 105). When a
company adopts a cost leadership strategy, then it will be able to target the low and middle-
income customers, who are passionate about receiving high-quality products at lower prices. For

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example, IKEA is globally known for its low prices and uniquely designed furniture. It adopted a
low-cost strategy, especially in Europe to enable everybody to afford its furniture (Johansson &
Thelander, 2009, p. 199). This has made it remain as the leading seller in the furniture industry.
Besides, I worked as Customer service Assistant at one of the Cole Supermarkets’ stores in
Australia in 2016, and during this time, the company had adopted a “Down Down” low-prices
campaign whereby it was offering its products at discounted prices. This enabled the company to
increase its sale and customer base. By 2016, more than seventy percent of every dollar spent by
consumers in Australia went to Coles and Woolworth's.
The work of the management is to maintain a working and equitable balance among the
claims of the different interested groups in the firm such as employees, stockholders, and the
customers. However, in the 1980s, corporate raiders started mounting hostile takeovers of firms
that were unable to deliver high returns to their shareholders- if they neglected their other
stakeholders (Ingerson et al., 2015, p. 378). The raiders foresaw that profits would be higher if
firms fired their workers or cut their pay, automated as many activities as possible, fought
unions, squeezed their clients and neglected their communities. Despite that the law did not
oblige firms to maximize shareholder value, the shareholders had the legal rights to fire or
replace their directors.
Since then, stakeholder capitalism was replaced with shareholder capitalism. At this
point, a strategy was viewed by firms as a way of achieving shareholder value. Some scholars
argued that shareholder capitalism was beneficial in that it moved economic resources to where
they proved most productive hence making the economy to grow faster (Ingerson et al., 2015, p.
382). However, due to the problems associated with shareholder theory like the growth of
economic insecurity, the decline or flattening of wages and the abandoning of the communities,

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many companies’ profits began to decline. This necessitated the movement of most companies
towards stakeholder capitalism. In the stakeholder approach, companies consider the interests of
different corporate groups other than just those of the shareholders (Miles, 2017, p. 438). It
evaluates the performance of corporations by a broad range of parameters, and not only by
shareholder performance. It can, therefore, be viewed as a strategic approach to management.
Any firm focuses on its strategic plan and core capabilities to keep their client base intact.
To do so, they need to understand both the strategic and operational issues that may deter them
from achieving their goals. A strategic issue can be defined as a primary policy question or
critical challenge that affects a firm’s mission, mandates, stakeholders, values resources,
processes, management, or service or product level and mix (Koch & Friis, 2015, p. 503).
Conversely, operational issues are problems which render an enterprise less profitable, by
draining its resources and energy. Managers should conduct proper analyses to identify the
strategic issues that may negatively impact on their strategic planning. This is because most
strategic issues are linked to the strategic formulation step in the firm's strategic planning
process. Therefore, if they are not identified and handled, then it may make the managers unable
to determine the best strategy that can be implemented successfully. Also, managers should be
aware of the possible operational issues that may emanate from its operational activities. This
will enable it to prevent wastage of resources and minimize unnecessary operational expenses.
Two specific scholars made significant contributions in the study of strategy- Porter, and
Mintzberg. While Porter adopts a more deliberate approach to strategy, Mintzberg emphasizes on
emergent strategy (Feurer, Chaharbaghi, 1995, p. 13). The world of deliberate strategy is one that
involves strategic design and planning. On the other hand, Mintzberg suggests that strategy
emerges over time as the intentions of a firm accommodate and collude with reality. In my

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opinion, a strategy is emergent. This is because, in the course of their operations, organizations
keep on learning what works in practice.
Furthermore, organizations may not be able to accurately predict and control the
environmental variables that may factor into the business in the course of their strategic
implementation process. For instance, in the case of IKEA, the company had adopted its low-
cost strategy for many years of its operation in Europe. However, when it entered China, it
realized that this strategy could not work (Johansson & Thelander, 2009, p. 205). It, therefore,
had to identify what it was missing. After analyzing the Chinese market, it entered a joint venture
to enable it to meet the Chinese laws; the joint venture enabled it to understand its customers
better and adopt appropriate strategies that could work.
Conclusion
In conclusion, strategy refers to a plan developed by a company to help it achieve its
objectives. The definition of strategy has since changed from satisfying the shareholders'
interests to meeting the interests of all the stakeholders affected by the firm. Besides, a strategy is
more emergent than designed. This is because it is difficult for a firm to identify and control all
the environmental factors that may impact its strategy.

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References
Anwar, J., Shah, S. & Hasnu, S., 2016. Business Strategy and Organizational Performance:
Measures and Relationships. Pakistan Economic and Social Review, 54(1), p.97- 122.
Feurer, R. & Chaharbaghi, K., 1995. Strategy Development: Past, Present and Future.
Management decision, 33(6), pp.11-21.
Ingerson, M.C., Agle, B.R., Donaldson, T., Godfrey, P.C. & Harris, J.D., 2015. Normative
Stakeholder Capitalism: Getting from Here to There. Business and Professional Ethics Journal,
34(3), pp.377-406.
Johansson, U. & Thelander, Å, 2009. A Standardised Approach to the World? IKEA in China.
International Journal of Quality and Service Sciences, 1(2), pp.199-219.
Koch, C. & Friis, O., 2015. Operations Strategy Development in Project Based Production–a
Political Process Perspective. Journal of Manufacturing Technology Management, 26(4),
pp.501-514.
Miles, S., 2017. Stakeholder Theory Classification: A Theoretical and Empirical Evaluation of
Definitions. Journal of Business Ethics, 142(3), pp.437-459.
Taiwo, A.A., Agwu, M.E. & Lawal, F.A., 2016. Vision and Mission in Organization: Myth or
Heuristic Device? The International Journal of Business & Management, 4(3), p.127- 133.