Executive students at both our institutions inspired the writing of this book. Its content and structure reflect their probing questions, many constructive suggestions, and demand for practical examples. At the same time, we have worked hard to differentiate this book from rival entries by keeping it short, maintaining a conversational style, and adopting an executive orientation.
Every company claims to have a strategy although it may not always be explicitly articulated. In Chapter 1, “What is Strategy?”, we define strategy as the deliberate act of positioning a company for competitive advantage by focusing on unique ways to create value for customers. In doing so, we distinguish strategy from business models and tactics. We also differentiate between crafting a strategy and enhancing an organization’s operational effectiveness, introduce the concept of a competitive advantage cycle, and define such commonly used terms as mission, vision, strategic intent, and stretch. We conclude with a discussion of the process by which strategy is formulated in most companies.
Distinguishing effective from poor strategies should ultimately be based on corporate performance. Chapter 2, “Strategy and Performance,” begins with a discussion of the importance of economies of scale and scope in today’s competitive environment. Next, it argues that carefully defining a firm’s core business is critical to sustained success as is a clear understanding of the need and avenues for growth. With this background, we introduce a conceptual framework that links strategy and performance. Finally, we discuss different approaches to evaluating strategy proposals. As part of this discussion, concepts such as shareholder value and the Balanced Scorecard are introduced.
Yearend strategy reviews are often devoted to “What has changed?” discussions. In Chapter 3, “Analyzing the External Strategic Environment,” we look at three environmental trends that continue to reshape the competitive environment. The first is globalization. We ask how global we have become, analyze the persistence of distance, and look at why companies and entire industries seek to become global. Next, we look at how the technology revolution is changing business with particular emphasis on the influence of the Internet, the impact of “Big Data” and the new business models it is spawning. Third, we look at how demands for corporate social responsibility (CSR) have created a new compact between business and society. We end with a description of different approaches to analyzing uncertainty in the competitive environment.
With Chapter 4, “Analyzing an Industry,” we begin the discussion of specific analytical concepts, tools and frameworks used in strategy formulation. We start by defining an industry along four principal dimensions: products, customer, geography, and stages in the production–distribution pipeline. Next, it introduces Porter’s well-known five forces model, the so-called Rule of Three, and looks at patterns of industry evolution. It concludes with a discussion of segmentation, competitor analysis, and strategic groups.
In Chapter 5, “Analyzing an Organization’s Strategic Resource Base,” we focus on analyzing a firm’s strategic resources, including its physical assets, its relative financial position, the quality of its people, its market reputation and brand equity, and specific knowledge, competencies, processes, skills, or cultural aspects. As part of this discussion we consider the value of a company’s global eco-system, look at internal change forces a company must deal with and present a model for assessing an organization’s capacity to absorb change. We end with a section on the benefits associated with creating a green corporate strategy.
Two Chapters are devoted to the development of a competitive strategy at the business unit level. Business unit or competitive strategy is concerned with how to compete in a given competitive setting. In Chapter 6, “Formulating Business Unit Strategy,” we ask the question: What determines profitability at the business unit level? We look at how profitability is related to the nature of the industry in which a company competes and to the company’s competitive position within that industry. Next, we discuss the concept of competitive advantage and introduce value chain analysis, Porter’s generic strategy framework, and value disciplines.
Hyper-competition is becoming the norm in many industries. In Chapter 7, “Business Unit Strategy: Contexts and Special Dimensions,” we move beyond generic strategies to strategy formulation in specific different industry environments. Three contexts represent different stages in an industry’s evolution—emerging, growth, and maturity. We also discus industry environments that pose unique strategic challenges such as fragmented, deregulating, hypercompetitive, and Internet-based industries. Because hyper-competition is increasingly characteristic of business-level competition in many industries, we conclude the chapter with a discussion of two critical attributes of successful firms in dynamic industries: speed and innovation.
Leveraging global opportunities is the subject of the next two Chapters. In Chapter 8, “Global Strategy Formulation-Fundamentals,” we introduce global strategy formulation as business model change—through principles of adaptation, aggregation and arbitrage. We also look at important changes companies have to make to their management model as they globalize such as creating a global mindset, and restructuring their operations for global competitive advantage.
Opening global markets, globalizing the value proposition and evaluating sourcing and supply chain options are the major topics covered in Chapter 9, “Corporate Strategy Formulation: Specifics.” The discussion includes a section on the strategic logic behind the use of alliances in pursuing global goals.
Visionary strategy development and implementation requires a diversity of perspectives and strong endorsement by a company’s board of directors. In Chapter 10, “The Board’s Role in Strategic Management,” we discuss what contributions directors can make to the strategy formulation process and when their involvement is essential. We conclude that a board’s most important role is to monitor the strategy implementation process and provide feedback to stakeholders.
Entrepreneurial thinking is important to effective strategy development and implementation in any successful organization—at board level, for managers at all levels of the organization, and in strategic partnerships. Reflecting this thought, we end the book with a section on strategic metrics the board should consider and other actions the board can take to infuse an entrepreneurial spirit.