Strategy

Abstract

The objective of all firms is the creation of value. A firm’s strategies describe how it intends to create value over an immediate time frame, and the value opportunities it is searching for over the long term. Value, however, has different meanings to different stakeholders. Firms manage resources to create value through their capabilities to deliver products or services that provide customer value, maintain relationships with resource providers and customers, and organize activities through governance, management systems and processes. To do this, a firm has to create an equitable balance between stakeholders such as management, customers, employees, financiers, unions, suppliers, shareholders, government and society in general.

Appendix: Classifying Industry Sectors Today

Industry classification systems categorize firms into groups using a number of different factors, which can include similar production processes, products or financial market behaviour. In general, industries are identified with relatively broad markets, while markets themselves refer to specific products. The rise of the information and service economies, however, has blurred the boundaries between manufacturing and services, and created an issue in how to define an industry’s boundaries.

One distinction is the difference between high technology and mature industries. High technology or technology intensive industries are science-based manufacturing industries that have above average R&D levels. Measures for high technology industries include the level of R&D intensity, derived by dividing industry R&D expenditures with industry sales, and levels of patent activity. Examples of high tech industries include the information technology sector, aerospace, pharmaceuticals and communications.

Mature industries are those that have moved through the emerging and growth phases, and have reached a stage in their life cycle where they grow in line with the economy. Examples include financial services, insurance, food, energy, construction, automotive, tobacco, steel and textiles. R&D expenditure is typically less than 1% of sales, which contrasts to high technology industries, where R&D spending can be up to 65% of sales.

In 1999, Standard & Poor’s and Morgan Stanley Capital International (MSCI) together launched the Global Industry Classification Standard (GICS) to establish consistent industry definitions. The GICS system was designed to classify firms into groups that have similar stock market behaviour, and today, consists of 11 sectors aggregated from 24 industry groups, 69 industries and 158 sub-industries. The 11 sectors are:

• Consumer discretionary

• Consumers staples

• Energy

• Financials

• Health care

• Industrials

• Information technology

• Materials

• Communication services

• Utilities

• Real estate