Firm Strategy: Definition, Nature and Characteristics

In the literature, the concept of firm is explored by different theoretical approaches. In neo-classical theory, the firm is considered as a “black box” that assembles all of necessary elements for organizing and implementing the production and business activities. Jensen and Meckling (1976), in the perspective of agency theory, define the firm as “an alliance of agents” (such as owners, managers, partners …) who can pursue different benefits. In transaction cost economics, Williamson (1975) define the firm as “a network of specific contracts” between individuals and organizations. In Resource-based View, Barney (1991) and Grant (1991) considerer the firm as a “place where resources are concentrated”.

Regardless of the different approaches, in general, firm is a “strategic” organization that has mission of producing, trading and distributing products, services to customers and/or consumers. To perform these, firm adopt strategy by strategically self-organizing, mobilizing and impacting on its resources (including: materials, finance, human resources, equipment and machinery, information) in a certain scope, by complying with the legislations, and in ensuring a certain profitability level.

1. Definition of firm strategy

From experimental approach, Alfred Sloan (manager at General Motors from 1923 to 1946) states that strategy is established on the basis of strengths and weaknesses. According to Chandler, “strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (1962). Andrews (1980) defines: “Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or in-tends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities”.

Porter (1985) defined strategy, in terms of competitive strategy, “… is the search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition”. Also, Porter (1980) specified strategy as the “… broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals” (p.xxiv) and the “… combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there” (p.xxiv). He emphasized three basic principles of firm strategy: (i) creating a unique and valuable position in the market; (ii) creating balance through the choice of “not-to-do things”; and (iii) achieving general “suitability” by suitably organizing and coordinating activities within the firm to support the strategy chosen.

Mintzberg (1994) affirms that human use “strategy” by different methods. According to him, there are four main strategic approaches, including: (i) strategy is a plan, a “how”, a means of getting from here to there; (ii) strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a “high end” strategy; (iii) strategy is position; that is, it reflects decisions to offer particular products or services in particular markets; and (iv) strategy is perspective, that is, vision and direction.

2. Nature of firm strategy

In general, strategy represents the desirable goals of the firm and its actions taken to achieve those goals. In nature, firm strategy often focuses on the long-term orientations of the firm, related to development trends and customer needs, competition, positioning in the future; thereby enabling the firm to establish suitable organizational system and to gradually develop the business by improving its performance. Firm strategy also involves strategic decisions relating to the daily activities such as business functioning, building and developing internal and external relationships …, and also to policies with employees, management, supervision, leading the firm …

So, a strategy should base on firm’s competitive advantage (in terms of products, geographical location, scale, services …), that is a crucial factor that makes firm different by improving its positioning in the market. Therefore, firm must possess at least one sustainable competitive advantage in long-term in assuring its survival and development in the future.

Strategy can be considered as a practical tool for assessing and adjusting the fitness of firm’s business activities and strategic orientations with the environment. It can also be seen as an opportunity for the business innovation. Firm strategy not only depends on environmental factors, but also expected values of internal partners (shareholders, managers, employees) and external stakeholders (business partners, customers, community, government). Thus, strategy is both future orientations and motivations for firm to achieve the target strategic goals.

3. Characteristics of firm strategy

In these perspectives, strategy has the following characteristics (Johnson et al., 2005):

• Strategy refers to long-term orientations of the firm;
• Strategy often aims at responding and adapting to business environment. This requires firm to be flexible and responsive to environmental changes. Achieving a strategic positioning in the market is especially important for firm, it means that its products and services are in line with market needs;
• Strategy can also aim to creating opportunities and new business environment on the basis of generating new resources and capacities in firm;
• A strategy is influenced not only by environmental forces and strategic capabilities of the firm, but also values and expectations of people in power and influential stakeholders related.