{"id":39,"date":"2014-05-13T17:44:22","date_gmt":"2014-05-13T17:44:22","guid":{"rendered":"http:\/\/opentextbc.ca\/strategicmanagement\/?post_type=chapter&p=39"},"modified":"2019-06-26T22:22:14","modified_gmt":"2019-06-26T22:22:14","slug":"the-history-of-strategic-management","status":"publish","type":"chapter","link":"https:\/\/opentextbc.ca\/strategicmanagement\/chapter\/the-history-of-strategic-management\/","title":{"raw":"The History of Strategic Management","rendered":"The History of Strategic Management"},"content":{"raw":"
\r\n

Learning Objectives<\/p>\r\n\r\n<\/header>\r\n

\r\n
    \r\n \t
  1. Consider how strategy in ancient times and military strategy can provide insights to businesses.<\/li>\r\n \t
  2. Describe how strategic management has evolved into a field of study.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n
    Those who cannot remember the past are condemned to repeat it.\r\n\r\n\u2014George Santayana, The Life of Reason<\/blockquote>\r\nSantayana\u2019s quote has strong implications for strategic management. The history of strategic management can be traced back several thousand years. Great wisdom about strategy can be acquired by understanding the past, but ignoring the lessons of history can lead to costly strategic mistakes that could have been avoided. Certainly, the present offers very important lessons; businesses can gain knowledge about what strategies do and do not work by studying the current actions of other businesses. But this section discusses two less obvious sources of wisdom: (1) strategy in ancient times and (2) military strategy. This section also briefly traces the development of strategic management as a field of study.\r\n

    Strategy in Ancient Times<\/h1>\r\nOne of the earliest-known discussion of strategy is offered in the Old Testament of the Bible (Bracker, 1980).\u00a0Approximately 3,500 years ago, Moses faced quite a challenge after leading his fellow Hebrews out of enslavement in Egypt. Moses was overwhelmed as the lone strategist at the helm of a nation that may have exceeded one million people. Based on advice from his father-in-law, Moses began delegating authority to other leaders, each of whom oversaw a group of people. This hierarchical delegation of authority created a command structure that freed Moses to concentrate on the biggest decisions and helped him implement his strategies (Figure 1.8 \"Strategy in Ancient Times\"<\/a>). Similarly, the demands of strategic management today are simply too much for a chief executive officer (the top leader of a company) to handle alone. Many important tasks are thus entrusted to vice presidents and other executives.<\/a>\r\n\r\n \r\n\r\n[caption id=\"attachment_495\" align=\"aligncenter\" width=\"400\"]\"Strategy<\/a> Figure 1.8 Strategy in Ancient Times [Image Description]<\/a>[\/caption]In ancient China, strategist and philosopher Sun Tzu offered thoughts on strategy that continue to be studied carefully by business and military leaders today. Sun Tzu\u2019s best-known work is The Art of War<\/em>. As this title implies, Sun Tzu emphasized the creative and deceptive aspects of strategy.\r\n\r\nOne of Sun Tzu\u2019s ideas that has numerous business applications is that winning a battle without fighting is the best way to win. Apple\u2019s behaviour in the personal computer business offers a good example of this idea in action. Many computer makers such as Toshiba, Acer, and Lenovo compete with one another based primarily on price. This leads to price wars that undermine the computer makers\u2019 profits. In contrast, Apple prefers to develop unique features for its computers, features that have created a fiercely loyal set of customers. Apple boldly charges far more for its computers than its rivals charge for theirs. Apple does not even worry much about whether its computers\u2019 software is compatible with the software used by most other computers. Rather than fighting a battle with other firms, Apple wins within the computer business by creating its own unique market and by attracting a set of loyal customers. Sun Tzu would probably admire Apple\u2019s approach.\r\n\r\nPerhaps the most famous example of strategy in ancient times revolves around the Trojan horse. According to legend, Greek soldiers wanted to find a way to enter the gates of Troy and attack the city from the inside. They devised a ploy that involved creating a giant wooden horse, hiding soldiers inside the horse, and offering the horse to the Trojans as a gift. The Trojans were fooled and brought the horse inside their city. When night arrived, the hidden Greek soldiers opened the gates for their army, leading to a Greek victory. In modern times, the term Trojan horse<\/em> refers to gestures that appear on the surface to be beneficial to the recipient but that mask a sinister intent. Computer viruses also are sometimes referred to as Trojan horses.\r\n\r\nA far more noble approach to strategy than the Greeks\u2019 is attributed to King Arthur of Britain. Unlike the hierarchical approach to organizing Moses used, Arthur allegedly considered himself and each of his knights to have an equal say in plotting the group\u2019s strategy. Indeed, the group is thought to have held its meetings at a round table so that no voice, including Arthur\u2019s, would be seen as more important than the others. The choice of furniture in modern executive suites is perhaps revealing. Most feature rectangular meeting tables, perhaps signaling that one person\u2014the chief executive officer\u2014is in charge.\r\n\r\nAnother implication for strategic management offered by King Arthur and his Knights of the Round Table involves the concept of mission. Their vigorous search to find the Holy Grail (the legendary cup used by Jesus and his disciples at the Last Supper) serves as an exemplar for the importance of a central mission to guide organizational strategy and actions.\r\n

    Lessons Offered by Military Strategy<\/h1>\r\nKey military conflicts and events have shaped the understanding of strategic management (Figure 1.9 \"Classic Military Strategy\"<\/a>). Indeed, the word strategy<\/em> has its roots in warfare. The Greek verb strategos<\/em> means \u201carmy leader\u201d and the idea of stratego<\/em> (from which we get the word strategy<\/em>) refers to defeating an enemy by effectively using resources (Bracker, 1980).\r\n\r\nA book written nearly 500 years ago is still regarded by many as an insightful guide for conquering and ruling territories. Niccol\u00f2 Machiavelli\u2019s 1532 book The Prince<\/em> offers clever recipes for success to government leaders. Some of the book\u2019s suggestions are quite devious, and the word Machiavellian<\/em> is used today to refer to acts of deceit and manipulation.\r\n\r\nTwo wars fought on American soil provide important lessons about strategic management. In the late 1700s, the American Revolution pitted the American colonies against mighty Great Britain. The Americans relied on nontraditional tactics, such as guerilla warfare and the strategic targeting of British officers. Although these tactics were considered by Great Britain to be barbaric, they later became widely used approaches to warfare. The Americans owed their success in part to help from the French navy, illustrating the potential value of strategic alliances.\r\n\r\nNearly a century later, Americans turned on one another during the Civil War. After four years of hostilities, the Confederate states were forced to surrender. Historians consider the Confederacy to have had better generals, but the Union possessed greater resources, such as factories and railroad lines. As many modern companies have discovered, sometimes good strategies simply cannot overcome a stronger adversary.\r\n\r\nTwo wars fought on Russian soil also offer insights. In the 1800s, a powerful French invasion force was defeated in part by the brutal nature of Russian winters. In the 1940s, a similar fate befell German forces during World War II. Against the advice of some of his leading generals, Adolf Hitler ordered his army to conquer Russia. Like the French before them, the Germans were able to penetrate deep into Russian territory. As George Santayana had warned, however, the forgotten past was about to repeat itself. Horrific cold coupled with excessively long (and vunerable) supply lines eventually stopped the German advance. Russian forces eventually took control of the combat, and in 1945 Hitler committed suicide as both Russians and Allied forces approached the German capital, Berlin.\r\n\r\nFive years earlier, Germany ironically had benefited from an opponent ignoring the strategic management lessons of the past. In ancient times, the Romans had assumed that no army could cross a mountain range known as the Alps. An enemy general named Hannibal put his men on elephants, crossed the mountains, and caught Roman forces unprepared. French commanders made a similar bad assumption in 1940. When Germany invaded Belgium (and then France) in 1940, its strategy caught French forces by surprise.\r\n\r\nThe top French commanders assumed that German tanks simply could not make it through a thickly wooded region known as the Ardennes Forest. As a result, French forces did not bother preparing a strong defense in that area. Most of the French army and their British allies instead protected against a small, diversionary force that the Germans had sent as a deception to the north of the forest. German forces made it through the forest, encircled the allied forces, and started driving them toward the ocean. Many thousands of French and British soldiers were killed or captured. In retrospect, the French generals had ignored an important lesson of history: Do not make assumptions about what your adversary can and cannot do. Executives who make similar assumptions about their competitors put their organizations\u2019 performance in jeopardy.<\/a>\r\n\r\n[caption id=\"attachment_497\" align=\"aligncenter\" width=\"400\"]\"Classic<\/a> Figure 1.9 Classic Military Strategy [Image description]<\/a>[\/caption]\r\n

    Strategic Management as a Field of Study<\/h1>\r\nUniversities contain many different fields of study, including physics, literature, chemistry, computer science, and engineering. Some fields of study date back many centuries (e.g., literature), while others (such as computer science) have emerged only in recent years. Strategic management has been important throughout history, but the evolution of strategic management into a field of study has mostly taken place over the past century. A few of the key business and academic events that have helped the field develop are discussed next (Figure 1.10 \"The Modern History of Strategic Management\"<\/a>).\r\n\r\nThe ancient Chinese strategist Sun Tzu made it clear that strategic management is part art. But it is also part science. Major steps toward developing the scientific aspect of strategic management were taken in the early twentieth century by Frederick W. Taylor. In 1911, Taylor published The Principles of Scientific Management<\/em>. The book was a response to Taylor\u2019s observation that most tasks within organizations were organized haphazardly. Taylor believed that businesses would be much more efficient if management principles were derived through scientific investigation. In The Principles of Scientific Management<\/em>, Taylor stressed how organizations could become more efficient through identifying the \u201cone best way\u201d of performing important tasks. Implementing Taylor\u2019s principles was thought to have saved railroad companies hundreds of millions of dollars.\u00a0Although many later works disputed the merits of trying to find the \u201cone best way,\u201d Taylor\u2019s emphasis on maximizing organizational performance became the core concern of strategic management as the field developed.\r\n\r\nAlso in the early 20th\u00a0century, automobile maker Henry Ford emerged as one of the pioneers of strategic management among industrial leaders. At the time, cars seemed to be a luxury item for wealthy people. Ford adopted a unique strategic perspective, however, and boldly offered the vision that he would make cars the average family could afford. Building on ideas about efficiency from Taylor and others, Ford organized assembly lines for creating automobiles that lowered costs dramatically. Despite his wisdom, Ford also made mistakes. Regarding his company\u2019s flagship product, the Model T, Ford famously stated, \u201cAny customer can have a car painted any colour that he wants so long as it is black.\u201d When rival automakers provided customers with a variety of colour choices, Ford had no choice but to do the same.\r\n\r\nIn 1912, Harvard University became the first higher-education institution to offer a course focused on how business executives could lead their organizations to greater success. The approach to maximizing performance within this \u201cbusiness policy\u201d course was consistent with Taylor\u2019s ideas. Specifically, the goal of the business policy course was to identify the one best response to any given problem that an organization confronted. By finding and pursuing this ideal solution, the organization would have the best chance of enjoying success.\r\n\r\nIn the 1920s, A&W Root Beer became the first franchised restaurant chain. [pb_glossary id=\"2572\"]Franchising[\/pb_glossary]<\/strong>\u00a0involves an organization (called a franchisor) granting the right to use its brand name, products, and processes to other organizations (known as franchisees) in exchange for an up-front payment (a franchise fee) and a percentage of franchisees\u2019 revenues (a royalty fee). This simple yet powerful business model allows franchisors to grow their brands rapidly and provides franchisees with the safety of a proven business format. Within a few decades, the franchising business model would fuel incredible successes for many franchisors and franchisees across a variety of industries. Today, for example, both Subway and McDonald\u2019s have more than 30,000 restaurants carrying their brand names.\r\n\r\nThe acceptance of strategic management as a necessary element of business school programs took a major step forward in 1959. A widely circulated report created by the Ford Foundation recommended that all business schools offer a \u201ccapstone\u201d course. The goal of this course would be to integrate knowledge across different business fields such as marketing, finance, and accounting to help students devise better ideas for addressing complex business problems. Rather than seeking a \u201cone best way\u201d solution, as advocated by Taylor and Harvard\u2019s business policy course, this capstone course would emphasize students\u2019 critical thinking skills in general and the notion that multiple ways of addressing a problem could be equally successful in particular. The Ford Foundation report was a key motivator that led U.S. universities to create strategic management courses in their undergraduate and master of business administration programs.\r\n\r\nIn 1962, business and academic events occurred that seemed minor at the time but that would later give rise to huge changes. Building on the business savvy that he had gained as a franchisee, Sam Walton opened the first Walmart in Rogers, Arkansas. Relying on a strategy that emphasized low prices and high levels of customer service, Walmart grew to 882 stores with a combined $8.4 billion dollars in annual sales by 1985. A decade later, sales reached $93.6 billion across nearly 3,000 stores. In 2010, Walmart was the largest company in the world. In recent years, Walmart has arguably downplayed customer service in favor of cutting costs. Time will tell whether deviating from Sam Walton\u2019s original strategic positioning will hurt the company.\r\n\r\nAlso in 1962, Harvard professor Alfred Chandler published Strategy and Structure: Chapters in the History of the Industrial Enterprise<\/em>. This book describes how strategy and organizational structure need to be consistent with each other to ensure strong firm performance, a lesson that Moses seems to have mastered during the Hebrews\u2019 exodus from Egypt. Many people working in the field of strategic management consider Chandler\u2019s book to be the first work of strategic management research.\r\n\r\nTwo pivotal events that firmly established strategic management as a field of study took place in 1980. One was the creation of the Strategic Management Journal<\/em>. The introduction of the journal offered a forum for researchers interested in building knowledge about strategic management. Much like important new medical findings appear in the Journal of the American Medical Association<\/em> and the New England Journal of Medicine<\/em>, the Strategic Management Journal<\/em> publishes pathbreaking insights about strategic management.\r\n\r\nThe second pivotal event in 1980 was the publication of Competitive Strategy: Techniques for Analyzing Industries and Competitors<\/em> by Harvard professor Michael Porter. This book offers concepts such as five forces analysis and generic strategies that continue to strongly influence how executives choose strategies more than thirty years after the book\u2019s publication. Given the importance of these concepts, both five forces analysis and generic strategies are discussed in detail in Chapter 3 \"Evaluating the External Environment\"<\/a> and Chapter 5 \"Selecting Business-Level Strategies,\"<\/a> respectively.<\/a><\/a>\r\n\r\n \r\n\r\n[caption id=\"attachment_500\" align=\"aligncenter\" width=\"400\"]\"Modern<\/a> Figure 1.10: The Modern History of Strategic Management [Image description]<\/a>[\/caption]Many consumers today\u00a0take web-based shopping for granted, but this channel for commerce was created less than two decades ago. The 1995 launch of Amazon by founder Jeff Bezos was perhaps the pivotal event in creating Internet-based commerce. In pursuit of its vision \u201cto be earth\u2019s most customer-centric company,\u201d Amazon has diversified far beyond its original focus on selling books and has evolved into a dominant retailer. Powerful giants have stumbled badly in Amazon\u2019s wake. Sears had sold great varieties of goods (even including entire houses) through catalogs for many decades, as had\u00a0Eaton\u2019s. Neither firm created a strong online sales presence to keep pace with Amazon, and both eventually dropped their catalog businesses. As often happens with old and large firms, Sears and Eaton\u2019s were outmaneuvered by a creative and versatile upstart. Eaton\u2019s went bankrupt in 1999, and in 2014 Sears is under bankruptcy protection in the United States.\r\n\r\nEthics have long been an important issue within the strategic management field. Attention to the need for executives to act ethically when creating strategies increased dramatically in the early 2000s\u00a0when a series of companies such as Bre-X and Enron Corporation were found to have grossly exaggerated the strength of their performance. After a series of revelations about fraud and corruption, investors in these firms and others lost billions of dollars, tens of thousands of jobs were lost, and some executives were sent to prison.\r\n\r\nLike ethics, the implications of international competition are of central interest to strategic management. Provocative new thoughts on the nature of the international arena were offered in 2005 by Thomas L. Friedman. In his book The World Is Flat: A Brief History of the Twenty-First Century<\/em>, Friedman argues that many of the advantages that firms in developed countries such as the United States, Japan, and Great Britain take for granted are disappearing. One implication is that these firms will need to improve their strategies if they are to remain successful.\r\n\r\nLooking to the future, it appears likely that strategic management will prove to be more important than ever. In response, researchers who are interested in strategic management will work to build additional knowledge about how organizations can maximize their performance. Executives will need to keep track of the latest scientific findings. Meanwhile, they also must leverage the insights that history offers on how to be successful while trying to avoid history\u2019s mistakes.\r\n
    \r\n

    Key Takeaway<\/p>\r\n\r\n<\/header>\r\n

    \r\n\r\nAlthough strategic management as a field of study has developed mostly over the last century, the concept of strategy is much older. Understanding strategic management can benefit greatly by learning the lessons that ancient history and military strategy provide.\r\n\r\n<\/div>\r\n<\/div>\r\n
    \r\n

    Exercises<\/p>\r\n\r\n<\/header>\r\n

    \r\n
      \r\n \t
    1. What do you think was the most important event related to strategy in ancient times?<\/li>\r\n \t
    2. In what ways are the strategic management of business and military strategy alike? In what ways are they different?<\/li>\r\n \t
    3. Do you think executives are more ethical today as a result of the scandals in the early 2000s? Why or why not?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n

      References<\/h1>\r\nBracker, J. (1980). The historical development of the strategic management concept.\u00a0Academy of Management Review<\/em>,\u00a05<\/em>(2), 219\u2013224.\r\n

      Image descriptions<\/h1>\r\n

      <\/a>Figure 1.8 image description: Strategy in Ancient Times.<\/strong><\/p>\r\nStrategic management borrows many ideas from ancient uses of strategy over time. The following anecdotes provide a few notable examples of historical actions that remain relevant for the study of modern strategy. Indeed, the Greek verb strategos<\/em> means \"army leader\" and the idea of stratego<\/em> (from which we get the word \"strategy\") refers to the idea of destroying one's enemies through the effective use of resources.\r\n