Strategic management

If management was the broad idea that allowed large companies to be run efficiently, strategic management was the vital refinement that permitted managers and their companies to “compete, win and survive”, to quote Walter Kiechel’s lively account of this revolution in The Lords of Strategy.

Michael Porter, the Harvard University academic, is the central figure in defining the concept. The pillars of strategic management are underpinned by his two books, Competitive Strategy (1980), which defined the “five basic forces” that determine the state of competition in any industry – customer power, supplier power, the threat of new entrants, substitute products and rivalry between established competitors – and Competitive Advantage (1985), which told chief executives how to retain their lead over rivals.

As one of our judges said in selecting “strategic management” for the list: before the development of the concept of strategic competitive advantage, and how to analyse it, “you just ‘did business’”.

But Porter’s ideas stood in the middle of a five-decade development of strategy as a tool, honed by consultancies such as McKinsey and taught by management schools.

In the process, strategic planning developed first as a separate step in strategic management and later as a continuous process of evaluation and re-evaluation of the competitive forces.

As an idea, however, strategic management has proved hard to do well and worryingly easy to get wrong. As Richard Rumelt wrote in his 2011 book Good Strategy/Bad Strategy, “the gap between good strategy and the jumble of things people label as ‘strategy’ has grown over the years.” He pointed out that many organisations fail because their leaders think it is enough to lay out vision statements and lists of objectives without addressing the critical question of how to reach those goals.

Debate still rages about whether the discipline can, or even should, be codified or professionalised, even as strategy evolves. For the future, Richard Whittington of Oxford University’s Saïd Business School has suggested opening a new phase of study. He differentiates “small strategy” – about the financial performance of companies in competitive industries – from “big strategy”.

The latter applies to organisations that have wider impact, such as “state-owned oligopolies, eccentric family behemoths and control-hungry entrepreneurs”, but fall outside the normal area of research.

Andrew Hill