Foundations of Strategy
1. Introduction
Strategic management has become a central discipline within business and organisational studies, addressing how firms analyse their environment, formulate objectives, and implement actions to achieve sustainable competitive advantage. In an era characterised by globalisation, technological disruption, regulatory complexity, and heightened social responsibility, organisations face unprecedented uncertainty and competition (Johnson et al., 2017). As a result, the use of structured strategy tools has become essential for informed decision-making rather than relying solely on intuition or managerial experience.
This article serves as an introductory framework for a comprehensive series of strategy tools that support systematic business analysis and strategic thinking. These tools are organised into six interrelated domains: Foundations of Strategy, External Analysis, Internal Analysis, Strategic Choices, Strategic Methods, and Strategy in Practice. Each domain addresses a critical dimension of strategic management, ranging from defining organisational purpose to evaluating competitive environments and implementing growth strategies.
The objective of this article is threefold. First, it introduces the conceptual foundations of strategy and strategic management. Second, it explains the rationale for organising strategy tools into structured categories. Third, it establishes the academic and practical relevance of strategy tools for contemporary organisations, particularly startups and small to medium-sized enterprises (SMEs), which often lack formal strategic planning resources.
By providing an integrated overview of strategic tools, this article forms the theoretical entry point for subsequent, in-depth analyses of individual frameworks such as PESTEL, Porter’s Five Forces, SWOT, VRIO, and the Ansoff Matrix.
2. Foundations of Strategy
The concept of strategy has evolved significantly over time. Early definitions viewed strategy primarily as a military-inspired plan to defeat competitors (Chandler, 1962). Chandler (1962) famously defined strategy as the determination of long-term goals and objectives and the adoption of courses of action and allocation of resources necessary for achieving them. More contemporary interpretations emphasise value creation, stakeholder engagement, and adaptability rather than rigid long-term planning (Mintzberg et al., 2009).
Porter (1996) argues that strategy is fundamentally about choosing to be different by performing activities differently from rivals. This perspective highlights the importance of deliberate positioning rather than operational effectiveness alone. Meanwhile, Johnson et al. (2017) conceptualise strategy as the direction and scope of an organisation over the long term, achieving advantage through configuration of resources within a changing environment.
Within the Foundations of Strategy domain, key elements include:
What is Strategy? – exploring definitions, evolution, and schools of thought.
Vision, Mission and Objectives – articulating organisational purpose and measurable goals.
Strategic Levels – corporate, business, and functional strategy.
Stakeholders and Corporate Social Responsibility (CSR) – recognising social and ethical dimensions.
Corporate Governance – ensuring accountability and control mechanisms.
These foundational concepts ensure that strategy is not treated solely as a technical exercise but as a holistic organisational process that integrates leadership, ethics, and governance (Freeman, 1984; Tricker, 2019).
3. External Analysis
External analysis examines the macro and industry environments in which organisations operate. It seeks to identify opportunities and threats beyond managerial control. The most widely used frameworks include PESTEL analysis and Porter’s Five Forces model.
3.1 PESTEL Analysis
PESTEL analysis evaluates six macro-environmental dimensions: Political, Economic, Social, Technological, Environmental, and Legal factors (Johnson et al., 2017). These dimensions capture regulatory changes, demographic trends, innovation patterns, and sustainability pressures that shape business conditions.
For example, political stability, interest rates, digitalisation, climate regulation, and labour laws significantly influence strategic choices. PESTEL analysis is particularly valuable for startups entering new markets, as it provides early warning signals of risks and emerging opportunities (Yüksel, 2012).
3.2 Porter’s Five Forces
Porter’s Five Forces framework analyses industry attractiveness through five competitive pressures: rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers (Porter, 1980). This model remains one of the most influential tools in strategic management due to its ability to explain profitability differences across industries.
Together, PESTEL and Five Forces enable organisations to understand both macro-level and industry-level environments. These tools reduce uncertainty by structuring environmental complexity into analytically manageable categories.
4. Internal Analysis
While external analysis focuses on environmental conditions, internal analysis examines organisational resources and capabilities. The core assumption is that sustainable competitive advantage arises from unique internal strengths rather than environmental positioning alone (Barney, 1991).
4.1 SWOT Analysis
SWOT analysis integrates external and internal perspectives by identifying strengths, weaknesses, opportunities, and threats. Despite criticism for oversimplification, SWOT remains popular due to its accessibility and integrative nature (Helms and Nixon, 2010). When used rigorously, SWOT provides a bridge between environmental scanning and strategic decision-making.
4.2 VRIO/VRIN Framework
The VRIO/VRIN framework evaluates whether resources are Valuable, Rare, Inimitable, and Organised (or Non-substitutable) (Barney, 1991). This resource-based view (RBV) shifts strategic emphasis from competition to internal uniqueness. Resources may include brand reputation, intellectual property, organisational culture, and technological know-how.
4.3 Value Chain Analysis
Value chain analysis disaggregates organisational activities into primary and support functions to identify cost advantages and differentiation potential (Porter, 1985). It allows firms to understand where value is created and how internal processes can be optimised.
4.4 Strategic Capabilities
Strategic capabilities refer to the combination of resources and competences that underpin organisational performance (Johnson et al., 2017). Dynamic capabilities theory further emphasises adaptability and learning as critical in volatile environments (Teece et al., 1997).
5. Strategic Choices
Strategic choices concern how organisations compete and grow. These decisions determine market positioning and long-term direction.
5.1 Porter’s Generic Strategies
Porter (1985) proposed three generic strategies: cost leadership, differentiation, and focus. Each strategy requires alignment of organisational activities and resources. Firms that fail to commit to a clear strategic position risk becoming “stuck in the middle”.
5.2 Ansoff Matrix
The Ansoff Matrix identifies four growth strategies: market penetration, market development, product development, and diversification (Ansoff, 1957). This tool is particularly useful for assessing risk levels associated with expansion decisions.
5.3 BCG Matrix
The Boston Consulting Group (BCG) matrix categorises business units based on market growth and market share into Stars, Cash Cows, Question Marks, and Dogs (Henderson, 1970). Although criticised for simplification, it remains influential for portfolio management.
5.4 Strategic Directions
Strategic directions integrate competitive positioning and growth logic, providing coherence between analysis and implementation.
6. Strategic Methods
Strategic methods translate strategic choices into concrete organisational actions. These include organic growth, mergers and acquisitions (M&A), strategic alliances, and joint ventures.
Organic growth focuses on internal development through innovation and market expansion. M&A strategies enable rapid access to resources and markets but involve high financial and integration risks (Cartwright and Schoenberg, 2006). Strategic alliances and joint ventures allow firms to share resources, mitigate risk, and access complementary capabilities (Das and Teng, 2000).
These methods illustrate that strategy is not solely analytical but operational and relational, involving networks of partners and institutional arrangements.
7. Strategy in Practice
The strategy-as-practice perspective emphasises what managers actually do rather than abstract plans (Whittington, 2006). This domain includes case studies, critical success factors, applications, and reflective learning.
Case studies enable empirical validation of theoretical models. Critical success factors highlight conditions necessary for strategic effectiveness. Applications demonstrate real-world relevance, while reflection encourages continuous improvement and learning.
This approach aligns with experiential learning theory, which views knowledge as emerging from practice and reflection (Kolb, 1984).
8. Integration of Strategy Tools
Strategy tools are not independent mechanisms but interdependent components of a strategic system. External analysis informs internal analysis, which shapes strategic choices and methods. Figure-based frameworks (such as PESTEL or BCG) simplify complexity but must be interpreted critically and contextually.
Over-reliance on tools without managerial judgement risks mechanistic decision-making (Mintzberg, 1994). Therefore, strategy tools should be viewed as cognitive aids that structure thinking rather than prescribe solutions.
For startups and SMEs, these tools provide low-cost, high-impact decision support. They foster analytical discipline, reduce uncertainty, and improve investor communication.
9. Limitations and Criticisms
Despite their usefulness, strategy tools face several criticisms. First, many models assume stable environments, whereas contemporary markets are dynamic and unpredictable (Teece et al., 1997). Second, tools may oversimplify complex realities into static categories. Third, data quality and managerial bias can distort analysis outcomes (Helms and Nixon, 2010).
Furthermore, Western-centric models may not fully capture cultural and institutional differences across global contexts. Consequently, strategy tools must be adapted rather than applied rigidly.
10. Conclusion
This article has introduced the conceptual foundations and structure of a comprehensive Strategy Tools framework. By organising strategy into Foundations, External Analysis, Internal Analysis, Strategic Choices, Strategic Methods, and Strategy in Practice, it provides a coherent roadmap for understanding and applying strategic management principles.
Strategy tools such as PESTEL, Porter’s Five Forces, SWOT, VRIO, Ansoff, and BCG remain academically grounded and practically relevant. When integrated thoughtfully, they enable organisations to navigate uncertainty, build competitive advantage, and align decisions with long-term objectives.
This introductory article establishes the theoretical basis for subsequent specialised articles within the series, each of which will explore individual tools in greater depth and with applied examples. Together, the series aims to bridge academic theory and managerial practice in strategic decision-making.
References (OBU Harvard Style)
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