The History of Strategic Management: From Planning to Practice

Strategic management did not begin as a discipline and become one. It accumulated, in roughly five overlapping phases, each responding to a problem the previous phase could not handle, and each leaving a technique behind that is still in use.

Knowing the sequence changes how the tools are read. A framework designed for a stable industrial economy behaves differently when applied to a fast-moving one, and most of the criticism levelled at the standard models is really an observation that they are being used outside the conditions that produced them.

Before the field existed

The earliest management writing addressed the internal organisation of work and not the direction of the enterprise. Scientific management concerned the efficiency of tasks; administrative theory concerned the functions of the manager; the human relations tradition concerned motivation and the group.

None of this asked what business the firm should be in. That question belonged to the owner and was not treated as a subject with a method.

The break came from studies of how large corporations actually organised themselves as they grew and diversified. The finding that structure follows strategy — that the administrative form a company adopts is a consequence of the market and product decisions it has taken — established two things at once: that strategy was a describable object, and that it had consequences inside the firm that could be studied.

Phase one: budgeting and control

The first systematic apparatus was financial. Annual budgets, variance analysis and capital expenditure approval procedures gave the centre of a large company a means of allocating resources and holding units accountable.

The assumption underneath was that next year resembles this year. That assumption held well enough in the post-war decades for the technique to work, and the technique itself never went away: every organisation discussed in this article still runs an annual budget.

Its limitation is that it is entirely internal and entirely short-term. A budget cannot tell a firm that its market is disappearing.

Phase two: long-range planning

The extension was to project further. Five-year plans, demand forecasts, and capacity and investment programmes built on extrapolation of past trends.

The technique suited an environment of steady growth with predictable demand, and it produced the planning departments that became characteristic of large corporations in the period.

Two weaknesses ended it. Extrapolation fails precisely at discontinuities, which are the events that matter most. And a plan produced by a specialist department is owned by that department rather than by the managers who have to act on it, which turns planning into a documentary exercise. The oil shocks of the 1970s discredited the forecasts and the approach together.

Phase three: strategic planning and positioning

The response was to stop forecasting the environment and start analysing it.

The first contribution of this phase was the idea of matching internal capability to external conditions, formalised in the analysis of strengths, weaknesses, opportunities and threats. It sounds elementary now, and the point at the time was structural: it made the environment an object of analysis rather than a set of numbers to be projected.

The second was the portfolio technique. A diversified corporation could display its business units by market growth and relative share, and allocate cash between them accordingly. The technique gave a head office a rationale for its own existence, which was to be a better allocator of capital than the market.

The third and most influential was industry analysis. The argument was that the profitability available in an industry is determined by its structure — the rivalry within it, the threat of entry, the availability of substitutes, and the bargaining power of buyers and suppliers — and that a firm's task is to position itself where that structure is favourable and to defend the position through cost leadership or differentiation.

This phase produced most of what a strategy course still teaches, and it rests on an assumption worth making explicit: that the source of profitability is the industry the firm is in, and the firm's job is to choose and defend a position within it.

Phase four: resources and competences

The counter-argument arrived in the 1980s and 1990s, and it began from an empirical observation. If industry structure determined profitability, firms within the same industry would perform similarly. They do not; the variation within industries is larger than the variation between them.

The resource-based view located the explanation inside the firm. Sustained advantage comes from resources that are valuable, rare, difficult to imitate and difficult to substitute — which in practice means not physical assets, which can be bought, but accumulated capabilities, reputation, relationships and knowledge embedded in the way an organisation works.

The related idea of core competence recast the diversified corporation. Instead of a portfolio of businesses to be traded, it became a set of underlying competences from which product businesses grow, with the corporate role being to build and share those competences, not to allocate cash between unrelated units.

The dynamic capabilities extension addressed the obvious objection. If advantage rests on resources built up over time, how does a firm in a fast-changing environment ever adapt? The answer proposed was a second-order capability: the ability to reconfigure the resource base itself.

Phase five: strategy as process and as practice

A parallel tradition questioned the picture of strategy as a decision taken at the top and implemented below.

The observation was that realised strategy rarely matches intended strategy. Some intentions are never realised; some patterns emerge without ever having been intended, through the accumulation of operating decisions made a long way from the boardroom. Strategy is therefore better defined as a pattern in a stream of decisions than as a plan.

That view was developed into a critique of planning itself: analysis can decompose a problem but cannot synthesise a direction, so a process that produces documents may produce no strategy at all.

The later strategy-as-practice literature took the argument further into the everyday, treating strategy as something people do — in meetings, workshops, presentations and the routines of the annual cycle — rather than something an organisation has. Its contribution is to make the actual work visible, and its cost is that it offers description and not prescription.

The strands running alongside

Two further bodies of work developed in parallel and are usually taught within the main sequence, so they belong in an account of it.

Diversification and corporate strategy. As conglomerates grew and then largely unwound, the question of what a multi-business corporation is for became pressing in its own right. The answer that survived is that a corporate centre must add more value to a business than the business would have standing alone, and more than another owner would add. That test turned corporate strategy from a matter of portfolio balance into a matter of parenting, and it is the reason divestment became a respectable strategic move and not an admission of failure.

Institutional and behavioural explanations. A separate tradition asked why organisations in a field come to resemble each other even when their circumstances differ. The answer offered was pressure towards conformity — regulation, imitation of apparently successful peers, and the shared assumptions of a profession — which produces strategies adopted for legitimacy rather than for advantage. Alongside it, work on how managers actually decide replaced the optimising decision-maker with one who satisfices under limited attention and information. Both strands explain patterns the rational models cannot: the simultaneous adoption of the same technique across an industry, and the persistence of strategies after the conditions that justified them have gone.

The pattern across the phases

Three movements run through the sequence and are worth stating, because they organise what would otherwise be a list.

The unit of analysis moves. From the budget line, to the plan, to the industry, to the firm's resources, to the practices of the people involved.

The source of advantage moves. From efficiency, to foresight, to position, to capability, to adaptation.

The assumption about stability weakens. Each phase assumes less predictability than its predecessor, and the later contributions abandon the assumption that a durable equilibrium exists at all.

What this means for using the tools

Nothing in the sequence is obsolete, and that is the practical conclusion.

Industry analysis remains the right instrument for a structurally stable industry and a poor one for a market where the boundaries are moving. Portfolio display is useful where a corporation genuinely allocates capital between independent units and misleading where the units share competences. Resource analysis explains durable differences between competitors and says less about which market to enter. The emergent view explains why a plan did not survive contact with the organisation and offers little help in writing one.

The error the history guards against is treating any single framework as the analysis rather than as one instrument with known conditions of use. Most weak strategic analysis consists of applying a favoured model to a situation it was not built for and reporting the output as a finding.

How it is examined

Two question types recur.

A question asking how the field developed wants the phases, the problem each was answering, and the technique each left behind. Naming the shift in the unit of analysis is what turns a chronology into an argument.

A question asking whether positioning or resources better explains performance wants both cases argued and a position taken. The strongest answers observe that the two are complements: a valuable resource is valuable only in relation to some market, and a favourable position is defensible only where something about the firm makes it hard to copy. Treating them as mutually exclusive misreads both.