Three Generic Strategies

In coping with the five competitive forces, there are three potentially
successful generic strategic approaches to outperforming other
firms in an industry:
1. overall cost leadership
2 differentiation
3. Focus

Porter Five Forces Analysis

Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an
organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive
forces model that determines industry structure.

i. Threat of new potential entrants

ii. Threat of substitute product/services

iii. Bargaining power of suppliers

iv. Bargaining power of buyers

v. Rivalry among current competitors

The five forces mentioned above are very significant from point of view of strategy formulation. The
potential of these forces differs from industry to industry. These forces jointly determine the
profitability of industry because they shape the prices which can be charged, the costs which can be
borne, and the investment required to compete in the industry. Before making strategic decisions, the
managers should use the five forces framework to determine the competitive structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not
currently competing in the industry but have the potential to do so if given a choice. Entry of
new players increases the industry capacity, begins a competition for market share and lowers
the current costs. The threat of entry by potential competitors is partially a function of extent of
barriers to entry. The various barriers to entry are-
 Economies of scale
 Brand loyalty
 Government Regulation
 Customer Switching Costs
 Absolute Cost Advantage
 Ease in distribution
 Strong Capital base

2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market share
between firms in an industry. Extreme rivalry among established firms poses a strong threat to
profitability. The strength of rivalry among established firms within an industry is a function of
following factors:
 Extent of exit barriers
 Amount of fixed cost
 Competitive structure of industry
  Presence of global customers
 Absence of switching costs
 Growth Rate of industry
 Demand conditions

3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or
the firms who distribute the industry’s product to the final consumers. Bargaining power of
buyers refer to the potential of buyers to bargain down the prices charged by the firms in the
industry or to increase the firms cost in the industry by demanding better quality and service of
product. Strong buyers can extract profits out of an industry by lowering the prices and
increasing the costs. They purchase in large quantities. They have full information about the
product and the market. They emphasize upon quality products. They pose credible threat of
backward integration. In this way, they are regarded as a threat.

4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of
inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong
suppliers can extract profits out of an industry by increasing costs of firms in the industry.
Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high
switching cost. Their product is an important input to buyer’s product. They pose credible threat
of forward integration. Buyers are not significant to strong suppliers. In this way, they are
regarded as a threat.

5. Threat of Substitute products: Substitute products refer to the products having ability of
satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential
returns of an industry by putting a setting a limit on the price that firms can charge for their
product in an industry. Lesser the number of close substitutes a product has, greater is the
opportunity for the firms in industry to raise their product prices and earn greater profits (other
things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five
forces influence the profitability as they affect the prices, the costs, and the capital investment essential
for survival and competition in industry. This five forces model also help in making strategic decisions as
it is used by the managers to determine industry’s competitive structure.

Porter ignored, however, a sixth significant factor- complementaries. This term refers to the reliance
that develops between the companies whose products work is in combination with each other. Strong
complementors might have a strong positive effect on the industry. Also, the five forces model
overlooks the role of innovation as well as the significance of individual firm differences. It presents a
stagnant view of competition
Key Points:

Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an
industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more
general situations.
It works by looking at the strength of five important forces that affect competition:

 Supplier Power: The power of suppliers to drive up the prices of your inputs.

 Buyer Power: The power of your customers to drive down your prices.

 Competitive Rivalry: The strength of competition in the industry.

 The Threat of Substitution: The extent to which different products and services can be used in
place of your own.

 The Threat of New Entry: The ease with which new competitors can enter the market if they
see that you are making good profits (and then drive your prices down).

By thinking about how each force affects you, and by identifying the strength and direction of each
force, you can quickly assess the strength of your position and your ability to make a sustained profit in
the industry.
You can then look at how you can affect each of the forces to move the balance of power more in your
favour.

Marketing strategy is the fundamental goal of increasing sales and achieving a sustainable competitive
advantage.[1] Marketing strategy includes all basic, short-term, and long-term activities in the field of
marketing that deal with the analysis of the strategic initial situation of a company and the formulation,
evaluation and selection of market-oriented strategies and therefore contributes to the goals of the
company and its marketing objectives.[2]

Developing a marketing strategy

The process generally begins with a scan of the business environment, both internal and external, which
includes understanding strategic constraints.[3] It is generally necessary to try to grasp many aspects of
the external environment, including technological, economic, cultural, political and legal aspects.[4] Goals
are chosen.

Then, a marketing strategy or marketing plan is an explanation of what specific actions will be taken
over time to achieve the objectives. Plans can be extended to cover many years, with sub-plans for each
year, although as the speed of change in the merchandising environment quickens, time horizons are
becoming shorter.[4] Ideally, strategies are both dynamic and interactive, partially planned and partially
unplanned, to enable a firm to react to unforeseen developments while trying to keep focused on a
specific pathway; generally, a longer time frame is preferred. There are simulations such as customer
lifetime value models which can help marketers conduct "what-if" analyses to forecast what might
happen based on possible actions, and gauge how specific actions might affect such variables as the
revenue-per-customer and the churn rate.

Strategies often specify how to adjust the marketing mix; firms can use tools such as Marketing Mix
Modeling to help them decide how to allocate scarce resources for different media, as well as how to
allocate funds across a portfolio of brands. In addition, firms can conduct analyses of performance,
customer analysis, competitor analysis, and target market analysis. A key aspect of marketing strategy is
often to keep marketing consistent with a company's overarching mission statement.[5]

Marketing strategy should not be confused with a marketing objective or mission. For example, a goal
may be to become the market leader, perhaps in a specific niche; a mission may be something along the
lines of "to serve customers with honor and dignity"; in contrast, a marketing strategy describes how a
firm will achieve the stated goal in a way which is consistent with the mission, perhaps by detailed plans
for how it might build a referral network, for example. Strategy varies by type of market. A well-
established firm in a mature market will likely have a different strategy than a start-up. Plans usually
involve monitoring, to assess progress, and prepare for contingencies if problems arise.

Diversity of Strategies

Marketing strategies may differ depending on the unique situation of the individual business. However,
there are a number of ways of categorizing some generic strategies. A brief description of the most
common categorizing schemes is presented below:

Strategies based on market dominance - In this scheme, firms are classified based on their market share
or dominance of an industry. Typically there are four types of market dominance strategies:

 Leader
 Challenger
 Follower
 Nicher

According to Shaw, Eric (2012). "Marketing Strategy: From the Origin of the Concept to the
Development of a Conceptual Framework". Journal of Historical Research in Marketing., there is a
framework for marketing strategies.

 Market introduction strategies

"At introduction, the marketing strategist has two principle strategies to choose from: penetration or
niche" (47).

 Market growth strategies

"In the early growth stage, the marketing manager may choose from two additional strategic
alternatives: segment expansion (Smith, Ansoff) or brand expansion (Borden, Ansoff, Kerin and
Peterson, 1978)" (48).

 Market maturity strategies

"In maturity, sales growth slows, stabilizes and starts to decline. In early maturity, it is common to
employ a maintenance strategy (BCG), where the firm maintains or holds a stable marketing mix" (48).

 Market decline strategies

At some point the decline in sales approaches and then begins to exceed costs. And not just accounting
costs, there are hidden costs as well; as Kotler (1965, p. 109) observed: 'No financial accounting can
adequately convey all the hidden costs.' At some point, with declining sales and rising costs, a harvesting
strategy becomes unprofitable and a divesting strategy necessary" (49).

Early marketing strategy concepts

 Borden's "marketing mix"

"In his classic Harvard Business Review (HBR) article of the marketing mix, Borden (1964) credits James
Culliton in 1948 with describing the marketing executive as a 'decider' and a 'mixer of ingredients.' This
led Borden, in the early 1950s, to the insight that what this mixer of ingredients was deciding upon was
a 'marketing mix'" (34).

 Smith's "differentiation and segmentation strategies"

"In product differentiation, according to Smith (1956, p. 5), a firm tries 'bending the will of demand to
the will of supply.' That is, distinguishing or differentiating some aspect(s) of its marketing mix from
those of competitors, in a mass market or large segment, where customer preferences are relatively
homogeneous (or heterogeneity is ignored, Hunt, 2011, p. 80), in an attempt to shift its aggregate
demand curve to the left (greater quantity sold for a given price) and make it more inelastic (less
amenable to substitutes). With segmentation, a firm recognizes that it faces multiple demand curves,
because customer preferences are heterogeneous, and focuses on serving one or more specific target
segments within the overall market" (35).

 Dean's "skimming and penetration strategies"

"With skimming, a firm introduces a product with a high price and after milking the least price sensitive
segment, gradually reduces price, in a stepwise fashion, tapping effective demand at each price level.
With penetration pricing a firm continues its initial low price from introduction to rapidly capture sales
and market share, but with lower profit margins than skimming" (37).

 Forrester's "product life cycle (PLC)"

"The PLC does not offer marketing strategies, per se; rather it provides an overarching framework from
which to choose among various strategic alternatives" (38).

Corporate strategy concepts

 Andrews' "SWOT analysis"

"Although widely used in marketing strategy, SWOT (also known as TOWS) Analysis originated in
corporate strategy. The SWOT concept, if not the acronym, is the work of Kenneth R. Andrews who is
credited with writing the text portion of the classic: Business Policy: Text and Cases (Learned et al.,
1965)" (41).

 Ansoff's "growth strategies"

"The most well-known, and least often attributed, aspect of Igor Ansoff's Growth Strategies in the
marketing literature is the term 'product-market.' The product-market concept results from Ansoff
juxtaposing new and existing products with new and existing markets in a two by two matrix" (41-42).

Porter's "generic strategies"

Porter generic strategies – strategy on the dimensions of strategic scope and strategic strength.
Strategic scope refers to the market penetration while strategic strength refers to the firm's sustainable
competitive advantage. The generic strategy framework (porter 1984) comprises two alternatives each
with two alternative scopes. These are Differentiation and low-cost leadership each with a dimension of
Focus-broad or narrow.

 Product differentiation
 Cost leadership
 Market segmentation

Innovation strategies

Innovation strategies deal with the firm's rate of the new product development and business model
innovation. It asks whether the company is on the cutting edge of technology and business innovation.
There are three types:

 Pioneers
 Close followers
 Late followers

Growth strategies

In this scheme we ask the question, "How should the firm grow?". There are a number of different ways
of answering that question, but the most common gives four answers:

 Horizontal integration
 Vertical integration
 Diversification
 Intensification

These ways of growth are termed as organic growth. Horizontal growth is whereby a firm grows towards
acquiring other businesses that are in the same line of business for example a clothing retail outlet
acquiring a food outlet. The two are in the retail establishments and their integration lead to expansion.
Vertical integration can be forward or backward. Forward integration is whereby a firm grows towards
its customers for example a food manufacturing firm acquiring a food outlet. Backward integration is
whereby a firm grows towards its source of supply for example a food outlet acquiring a food
manufacturing outlet.

Raymond Miles' Strategy Categories

In 2003, Raymond Miles proposed a more detailed scheme using the categories:Miles, Raymond (2003).
Organizational Strategy, Structure, and Process. Stanford: Stanford University Press. ISBN 0-8047-4840-
3.

 Prospector
 Analyzer
 Defender
 Reactor
 Marketing warfare strategies – This scheme draws parallels between marketing strategies and
military strategies.

BCG's "growth-share portfolio matrix" "Based on his work with experience curves (that also provides the
rationale for Porter's low cost leadership strategy), the growth-share matrix was originally created by
Bruce D. Henderson, CEO of the Boston Consulting Group (BCG) in 1968 (according to BCG history).
Throughout the 1970s, Henderson expanded upon the concept in a series of short (one to three page)
articles in the BCG newsletter titled Perspectives (Henderson, 1970, 1972, 1973, 1976a, b).
Tremendously popular among large multi-product firms, the BCG portfolio matrix was popularized in the
marketing literature by Day (1977)" (45).

Strategic models
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Marketing participants often employ strategic models and tools to analyze marketing decisions. When
beginning a strategic analysis, the 3C's model can be employed to get a broad understanding of the
strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic
positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a
defined strategy. Marketing Mix Modeling is often used to simulate different strategic flexing go the 4Ps.
Customer lifetime value models can help simulate long-term effects of changing the 4Ps, e.g.; visualize
the multi-year impact on acquisition, churn rate, and profitability of changes to pricing. However, 4Ps
have been expanded to 7 or 8Ps to address the different nature of services.

There are many companies, especially those in the consumer package goods (CPG) market, that adopt
the theory of running their business centered around consumer, shopper and retailer needs. Their
marketing departments spend quality time looking for "growth opportunities" in their categories by
identifying relevant insights (both mindsets and behaviors) on their target consumers, shoppers and
retail partners. These growth opportunities emerge from changes in market trends, segment dynamics
changing and also internal brand or operational business challenges. The marketing team can then
prioritize these growth opportunities and begin to develop strategies to exploit the opportunities that
could include new or adapted products, services as well as changes to the 7Ps.

Real-life marketing
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Real-life marketing primarily revolves around the application of a great deal of common-sense; dealing
with a limited number of factors, in an environment of imperfect information and limited resources
complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these
circumstances, is inevitably partial and uneven.

Thus, for example, many new products will emerge from irrational processes and the rational
development process may be used (if at all) to screen out the worst non-runners. The design of the
advertising, and the packaging, will be the output of the creative minds employed; which management
will then screen, often by 'gut-reaction', to ensure that it is reasonable.

For most of their time, marketing managers use intuition and experience to analyze and handle the
complex, and unique, situations being faced; without easy reference to theory. This will often be 'flying
by the seat of the pants', or 'gut-reaction'; where the overall strategy, coupled with the knowledge of
the customer which has been absorbed almost by a process of osmosis, will determine the quality of the
marketing employed. This, almost instinctive management, is what is sometimes called 'coarse
marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists.

An organization's strategy combines all of its marketing goals into one comprehensive plan. A good
marketing strategy should be drawn from market research and focus on the right product mix in order
to achieve the maximum profit potential and sustain the business. The marketing strategy is the
foundation of a marketing plan.

Strategic management involves the formulation and implementation of the major goals and initiatives
taken by a company's top management on behalf of owners, based on consideration of resources and
an assessment of the internal and external environments in which the organization competes.[1]

Strategic management provides overall direction to the enterprise and involves specifying the
organization's objectives, developing policies and plans designed to achieve these objectives, and then
allocating resources to implement the plans. Academics and practicing managers have developed
numerous models and frameworks to assist in strategic decision making in the context of complex
environments and competitive dynamics.[2] Strategic management is not static in nature; the models
often include a feedback loop to monitor execution and inform the next round of planning.[3][4][5]

Michael Porter identifies three principles underlying strategy: creating a "unique and valuable [market]
position", making trade-offs by choosing "what not to do", and creating "fit" by aligning company
activities with one another to support the chosen strategy.[6] Dr. Vladimir Kvint defines strategy as "a
system of finding, formulating, and developing a doctrine that will ensure long-term success if followed
faithfully."[7]
Corporate strategy involves answering a key question from a portfolio perspective: "What business
should we be in?" Business strategy involves answering the question: "How shall we compete in this
business?"[8] In management theory and practice, a further distinction is often made between strategic
management and operational management. Operational management is concerned primarily with
improving efficiency and controlling costs within the boundaries set by the organization's strategy.

Strategic management involves the formulation and implementation of the major goals and initiatives
taken by a company's top management on behalf of owners, based on consideration of resources and
an assessment of the internal and external environments in which the organization competes.[1] Strategy
is defined as "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."[9] Strategies are
established to set direction, focus effort, define or clarify the organization, and provide consistency or
guidance in response to the environment.[10]

Strategic management involves the related concepts of strategic planning and strategic thinking.
Strategic planning is analytical in nature and refers to formalized procedures to produce the data and
analyses used as inputs for strategic thinking, which synthesizes the data resulting in the strategy.
Strategic planning may also refer to control mechanisms used to implement the strategy once it is
determined. In other words, strategic planning happens around the strategic thinking or strategy making
activity.[11]

Strategic management is often described as involving two major processes: formulation and
implementation of strategy. While described sequentially below, in practice the two processes are
iterative and each provides input for the other.[11]

Formulation

Formulation of strategy involves analyzing the environment in which the organization operates, then
making a series of strategic decisions about how the organization will compete. Formulation ends with a
series of goals or objectives and measures for the organization to pursue. Environmental analysis
includes the:

 Remote external environment, including the political, economic, social, technological, legal and
environmental landscape (PESTLE);
 Industry environment, such as the competitive behavior of rival organizations, the bargaining
power of buyers/customers and suppliers, threats from new entrants to the industry, and the
ability of buyers to substitute products (Porter's 5 forces); and
 Internal environment, regarding the strengths and weaknesses of the organization's resources
(i.e., its people, processes and IT systems).[11]

Strategic decisions are based on insight from the environmental assessment and are responses to
strategic questions about how the organization will compete, such as:

 What is the organization's business?

 Who is the target customer for the organization's products and services?
 Where are the customers and how do they buy? What is considered "value" to the customer?
  Which businesses, products and services should be included or excluded from the portfolio of
offerings?
 What is the geographic scope of the business?
 What differentiates the company from its competitors in the eyes of customers and other
stakeholders?
 Which skills and capabilities should be developed within the firm?
 What are the important opportunities and risks for the organization?
 How can the firm grow, through both its base business and new business?
 How can the firm generate more value for investors?[11][12]

The answers to these and many other strategic questions result in the organization's strategy and a
series of specific short-term and long-term goals or objectives and related measures.[11]

Implementation

The second major process of strategic management is implementation, which involves decisions
regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and
mobilized towards the objectives. Implementation results in how the organization's resources are
structured (such as by product or service or geography), leadership arrangements, communication,
incentives, and monitoring mechanisms to track progress towards objectives, among others.[11]

Running the day-to-day operations of the business is often referred to as "operations management" or
specific terms for key departments or functions, such as "logistics management" or "marketing
management," which take over once strategic management decisions are implemented.[11]

Many definitions of strategy

Strategy has been practiced whenever an advantage was gained by planning the sequence and timing of
the deployment of resources while simultaneously taking into account the probable capabilities and
behavior of competition.

Bruce Henderson[13]

In 1988, Henry Mintzberg described the many different definitions and perspectives on strategy
reflected in both academic research and in practice.[14][15] He examined the strategic process and
concluded it was much more fluid and unpredictable than people had thought. Because of this, he could
not point to one process that could be called strategic planning. Instead Mintzberg concludes that there
are five types of strategies:

 Strategy as plan – a directed course of action to achieve an intended set of goals; similar to the
strategic planning concept;
 Strategy as pattern – a consistent pattern of past behavior, with a strategy realized over time
rather than planned or intended. Where the realized pattern was different from the intent, he
referred to the strategy as emergent;
 Strategy as position – locating brands, products, or companies within the market, based on the
conceptual framework of consumers or other stakeholders; a strategy determined primarily by
factors outside the firm;
  Strategy as ploy – a specific maneuver intended to outwit a competitor; and
 Strategy as perspective – executing strategy based on a "theory of the business" or natural
extension of the mindset or ideological perspective of the organization.

In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought” and
grouped them into three categories. The first group is normative. It consists of the schools of informal
design and conception, the formal planning, and analytical positioning. The second group, consisting of
six schools, is more concerned with how strategic management is actually done, rather than prescribing
optimal plans or positions. The six schools are entrepreneurial, visionary, cognitive,
learning/adaptive/emergent, negotiation, corporate culture and business environment. The third and
final group consists of one school, the configuration or transformation school, a hybrid of the other
schools organized into stages, organizational life cycles, or “episodes”.[16]

Michael Porter defined strategy in 1980 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" 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." He continued that: "The essence of formulating competitive strategy is relating a
company to its environment."[17]

Historical development

Origins

The strategic management discipline originated in the 1950s and 1960s. Among the numerous early
contributors, the most influential were Peter Drucker, Philip Selznick, Alfred Chandler, Igor Ansoff, and
Bruce Henderson.[2] The discipline draws from earlier thinking and texts on 'strategy' dating back
thousands of years. Prior to 1960, the term "strategy" was primarily used regarding war and politics, not
business.[18] Many companies built strategic planning functions to develop and execute the formulation
and implementation processes during the 1960s.[19]

Peter Drucker was a prolific management theorist and author of dozens of management books, with a
career spanning five decades. He addressed fundamental strategic questions in a 1954 book The Practice
of Management writing: "...the first responsibility of top management is to ask the question 'what is our
business?' and to make sure it is carefully studied and correctly answered." He wrote that the answer
was determined by the customer. He recommended eight areas where objectives should be set, such as
market standing, innovation, productivity, physical and financial resources, worker performance and
attitude, profitability, manager performance and development, and public responsibility.[20]

In 1957, Philip Selznick initially used the term "distinctive competence" in referring to how the Navy was
attempting to differentiate itself from the other services.[2] He also formalized the idea of matching the
organization's internal factors with external environmental circumstances.[21] This core idea was
developed further by Kenneth R. Andrews in 1963 into what we now call SWOT analysis, in which the
strengths and weaknesses of the firm are assessed in light of the opportunities and threats in the
business environment.[2]

Alfred Chandler recognized the importance of coordinating management activity under an all-
encompassing strategy. Interactions between functions were typically handled by managers who
relayed information back and forth between departments. Chandler stressed the importance of taking a
long term perspective when looking to the future. In his 1962 ground breaking work Strategy and
Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company
structure, direction and focus. He says it concisely, “structure follows strategy.” Chandler wrote that:

"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."[9]

Igor Ansoff built on Chandler's work by adding concepts and inventing a vocabulary. He developed a grid
that compared strategies for market penetration, product development, market development and
horizontal and vertical integration and diversification. He felt that management could use the grid to
systematically prepare for the future. In his 1965 classic Corporate Strategy, he developed gap analysis
to clarify the gap between the current reality and the goals and to develop what he called “gap reducing
actions”.[22] Ansoff wrote that strategic management had three parts: strategic planning; the skill of a
firm in converting its plans into reality; and the skill of a firm in managing its own internal resistance to
change.[23]

Bruce Henderson, founder of the Boston Consulting Group, wrote about the concept of the experience
curve in 1968, following initial work begun in 1965. The experience curve refers to a hypothesis that unit
production costs decline by 20-30% every time cumulative production doubles. This supported the
argument for achieving higher market share and economies of scale.[24]

Porter wrote in 1980 that companies have to make choices about their scope and the type of
competitive advantage they seek to achieve, whether lower cost or differentiation. The idea of strategy
targeting particular industries and customers (i.e., competitive positions) with a differentiated offering
was a departure from the experience-curve influenced strategy paradigm, which was focused on larger
scale and lower cost.[17] Porter revised the strategy paradigm again in 1985, writing that superior
performance of the processes and activities performed by organizations as part of their value chain is
the foundation of competitive advantage, thereby outlining a process view of strategy.[25]

Change in focus from production to marketing

The direction of strategic research also paralleled a major paradigm shift in how companies competed,
specifically a shift from the production focus to market focus. The prevailing concept in strategy up to
the 1950s was to create a product of high technical quality. If you created a product that worked well
and was durable, it was assumed you would have no difficulty profiting. This was called the production
orientation. Henry Ford famously said of the Model T car: "Any customer can have a car painted any
color that he wants, so long as it is black."[26]

Management theorist Peter F Drucker wrote in 1954 that it was the customer who defined what
business the organization was in.[12] In 1960 Theodore Levitt argued that instead of producing products
then trying to sell them to the customer, businesses should start with the customer, find out what they
wanted, and then produce it for them. The fallacy of the production orientation was also referred to as
marketing myopia in an article of the same name by Levitt.[27]

Over time, the customer became the driving force behind all strategic business decisions. This marketing
concept, in the decades since its introduction, has been reformulated and repackaged under names
including market orientation, customer orientation, customer intimacy, customer focus, customer-
driven and market focus.

It's more important than ever to define yourself in terms of what you stand for rather than what you
make, because what you make is going to become outmoded faster than it has at any time in the past.

Jim Collins[28]

Jim Collins wrote in 1997 that the strategic frame of reference is expanded by focusing on why a
company exists rather than what it makes.[28] In 2001, he recommended that organizations define
themselves based on three key questions:

 What are we passionate about?

 What can we be best in the world at?
 What drives our economic engine?[29]

Nature of strategy

In 1985, Professor Ellen Earle-Chaffee summarized what she thought were the main elements of
strategic management theory where consensus generally existed as of the 1970s, writing that strategic
management:[8]

 Involves adapting the organization to its business environment;

 Is fluid and complex. Change creates novel combinations of circumstances requiring
unstructured non-repetitive responses;
 Affects the entire organization by providing direction;
 Involves both strategy formulation processes and also implementation of the content of the
strategy;
 May be planned (intended) and unplanned (emergent);
 Is done at several levels: overall corporate strategy, and individual business strategies; and
 Involves both conceptual and analytical thought processes.

Chaffee further wrote that research up to that point covered three models of strategy, which were not
mutually exclusive:

1. Linear strategy: A planned determination of goals, initiatives, and allocation of resources, along
the lines of the Chandler definition above. This is most consistent with strategic planning
approaches and may have a long planning horizon. The strategist "deals with" the environment
but it is not the central concern.
2. Adaptive strategy: In this model, the organization's goals and activities are primarily concerned
with adaptation to the environment, analogous to a biological organism. The need for
continuous adaption reduces or eliminates the planning window. There is more focus on means
(resource mobilization to address the environment) rather than ends (goals). Strategy is less
centralized than in the linear model.
3. Interpretive strategy: A more recent and less developed model than the linear and adaptive
models, interpretive strategy is concerned with "orienting metaphors constructed for the
purpose of conceptualizing and guiding individual attitudes or organizational participants." The
 aim of interpretive strategy is legitimacy or credibility in the mind of stakeholders. It places
emphasis on symbols and language to influence the minds of customers, rather than the
physical product of the organization.[8]

Concepts and frameworks

The progress of strategy since 1960 can be charted by a variety of frameworks and concepts introduced
by management consultants and academics. These reflect an increased focus on cost, competition and
customers. These "3 Cs" were illuminated by much more robust empirical analysis at ever-more granular
levels of detail, as industries and organizations were disaggregated into business units, activities,
processes, and individuals in a search for sources of competitive advantage.[18]

SWOT Analysis
Main article: SWOT Analysis

A SWOT analysis, with its four elements in a 2×2 matrix.

By the 1960s, the capstone business policy course at the Harvard Business School included the concept
of matching the distinctive competence of a company (its strengths and weaknesses) with its
environment (opportunities and threats) in the context of its objectives. This framework came to be
known by the acronym SWOT and was "a major step forward in bringing explicitly competitive thinking
to bear on questions of strategy." Kenneth R. Andrews helped popularize the framework via a 1963
conference and it remains commonly used in practice.[2]

A SWOT analysis is an organized design method used to evaluate the strengths, weaknesses,
opportunities and threats complex within the person or the group or the organization where the
functional process takes place.

SWOT analysis involves both internal and external factors in an organization.such that the first two
elements indicate internal capability and limitations while the last two factors indicate chances in
business and limitations.(SW =strength and weakness are internal factors while OT= Opportunities and
threats are external issues to a business).

Experience curve

The experience curve was developed by the Boston Consulting Group in 1966.[18] It is a hypothesis that
total per unit costs decline systematically by as much as 15-25% every time cumulative production (i.e.,
"experience") doubles. It has been empirically confirmed by some firms at various points in their
history.[30] Costs decline due to a variety of factors, such as the learning curve, substitution of labor for
capital (automation), and technological sophistication. Author Walter Kiechel wrote that it reflected
several insights, including:

 A company can always improve its cost structure;

 Competitors have varying cost positions based on their experience;
  Firms could achieve lower costs through higher market share, attaining a competitive
advantage; and
 An increased focus on empirical analysis of costs and processes, a concept which author Kiechel
refers to as "Greater Taylorism."

Kiechel wrote in 2010: "The experience curve was, simply, the most important concept in launching the
strategy revolution...with the experience curve, the strategy revolution began to insinuate an acute
awareness of competition into the corporate consciousness." Prior to the 1960s, the word competition
rarely appeared in the most prominent management literature; U.S. companies then faced considerably
less competition and did not focus on performance relative to peers. Further, the experience curve
provided a basis for the retail sale of business ideas, helping drive the management consulting
industry.[18]

Corporate strategy and portfolio theory

Main articles: Modern portfolio theory and Growth–share matrix

Portfolio growth–share matrix

The concept of the corporation as a portfolio of business units, with each plotted graphically based on
its market share (a measure of its competitive position relative to its peers) and industry growth rate (a
measure of industry attractiveness), was summarized in the growth–share matrix developed by the
Boston Consulting Group around 1970. By 1979, one study estimated that 45% of the Fortune 500
companies were using some variation of the matrix in their strategic planning. This framework helped
companies decide where to invest their resources (i.e., in their high market share, high growth
businesses) and which businesses to divest (i.e., low market share, low growth businesses.)[18]

Porter wrote in 1987 that corporate strategy involves two questions: 1) What business should the
corporation be in? and 2) How should the corporate office manage its business units? He mentioned
four concepts of corporate strategy; the latter three can be used together:[31]

1. Portfolio theory: A strategy based primarily on diversification through acquisition. The

corporation shifts resources among the units and monitors the performance of each business
unit and its leaders. Each unit generally runs autonomously, with limited interference from the
corporate center provided goals are met.
2. Restructuring: The corporate office acquires then actively intervenes in a business where it
detects potential, often by replacing management and implementing a new business strategy.
3. Transferring skills: Important managerial skills and organizational capability are essentially
spread to multiple businesses. The skills must be necessary to competitive advantage.
4. Sharing activities: Ability of the combined corporation to leverage centralized functions, such as
sales, finance, etc. thereby reducing costs.[31]

Other techniques were developed to analyze the relationships between elements in a portfolio. The
growth-share matrix, a part of B.C.G. Analysis, was followed by G.E. multi factoral model, developed by
General Electric. Companies continued to diversify as conglomerates until the 1980s, when deregulation
and a less restrictive anti-trust environment led to the view that a portfolio of operating divisions in
different industries was worth more as many independent companies, leading to the breakup of many
conglomerates.[18] While the popularity of portfolio theory has waxed and waned, the key dimensions
considered (industry attractiveness and competitive position) remain central to strategy.[2]

Competitive advantage
Main article: Competitive advantage

In 1980, Porter defined the two types of competitive advantage an organization can achieve relative to
its rivals: lower cost or differentiation. This advantage derives from attribute(s) that allow an
organization to outperform its competition, such as superior market position, skills, or resources. In
Porter's view, strategic management should be concerned with building and sustaining competitive
advantage.[25]

Industry structure and profitability

A graphical representation of Porter's Five Forces

Main article: Porter five forces analysis

Porter developed a framework for analyzing the profitability of industries and how those profits are
divided among the participants in 1980. In five forces analysis he identified the forces that shape the
industry structure or environment. The framework involves the bargaining power of buyers and
suppliers, the threat of new entrants, the availability of substitute products, and the competitive rivalry
of firms in the industry. These forces affect the organization's ability to raise its prices as well as the
costs of inputs (such as raw materials) for its processes.[17]

The five forces framework helps describe how a firm can use these forces to obtain a sustainable
competitive advantage, either lower cost or differentiation. Companies can maximize their profitability
by competing in industries with favorable structure. Competitors can take steps to grow the overall
profitability of the industry, or to take profit away from other parts of the industry structure. Porter
modified Chandler's dictum about structure following strategy by introducing a second level of
structure: while organizational structure follows strategy, it in turn follows industry structure.[17]

Generic competitive strategies

Main article: Porter's generic strategies

Michael Porter's Three Generic Strategies

Porter wrote in 1980 that strategy target either cost leadership, differentiation, or focus.[17] These are
known as Porter's three generic strategies and can be applied to any size or form of business. Porter
claimed that a company must only choose one of the three or risk that the business would waste
precious resources. Porter's generic strategies detail the interaction between cost minimization
strategies, product differentiation strategies, and market focus strategies.

Porter described an industry as having multiple segments that can be targeted by a firm. The breadth of
its targeting refers to the competitive scope of the business. Porter defined two types of competitive
advantage: lower cost or differentiation relative to its rivals. Achieving competitive advantage results
from a firm's ability to cope with the five forces better than its rivals. Porter wrote: "[A]chieving
competitive advantage requires a firm to make a choice...about the type of competitive advantage it
seeks to attain and the scope within which it will attain it." He also wrote: "The two basic types of
competitive advantage [differentiation and lower cost] combined with the scope of activities for which a
firm seeks to achieve them lead to three generic strategies for achieving above average performance in
an industry: cost leadership, differentiation and focus. The focus strategy has two variants, cost focus
and differentiation focus."[25]

The concept of choice was a different perspective on strategy, as the 1970s paradigm was the pursuit of
market share (size and scale) influenced by the experience curve. Companies that pursued the highest
market share position to achieve cost advantages fit under Porter's cost leadership generic strategy, but
the concept of choice regarding differentiation and focus represented a new perspective.[18]

Value chain

Michael Porter's Value Chain

Main article: Value chain

Porter's 1985 description of the value chain refers to the chain of activities (processes or collections of
processes) that an organization performs in order to deliver a valuable product or service for the
market. These include functions such as inbound logistics, operations, outbound logistics, marketing and
sales, and service, supported by systems and technology infrastructure. By aligning the various activities
in its value chain with the organization's strategy in a coherent way, a firm can achieve a competitive
advantage. Porter also wrote that strategy is an internally consistent configuration of activities that
differentiates a firm from its rivals. A robust competitive position cumulates from many activities which
should fit coherently together.[32]

Porter wrote in 1985: "Competitive advantage cannot be understood by looking at a firm as a whole. It
stems from the many discrete activities a firm performs in designing, producing, marketing, delivering
and supporting its product. Each of these activities can contribute to a firm's relative cost position and
create a basis for differentiation...the value chain disaggregates a firm into its strategically relevant
activities in order to understand the behavior of costs and the existing and potential sources of
differentiation."[2]

Core competence
Main article: Core competency

Gary Hamel and C. K. Prahalad described the idea of core competency in 1990, the idea that each
organization has some capability in which it excels and that the business should focus on opportunities
in that area, letting others go or outsourcing them. Further, core competency is difficult to duplicate, as
it involves the skills and coordination of people across a variety of functional areas or processes used to
deliver value to customers. By outsourcing, companies expanded the concept of the value chain, with
some elements within the entity and others without.[33] Core competency is part of a branch of strategy
called the resource-based view of the firm, which postulates that if activities are strategic as indicated by
the value chain, then the organization's capabilities and ability to learn or adapt are also strategic.[2]
Theory of the business

Peter Drucker wrote in 1994 about the “Theory of the Business,” which represents the key assumptions
underlying a firm's strategy. These assumptions are in three categories: a) the external environment,
including society, market, customer, and technology; b) the mission of the organization; and c) the core
competencies needed to accomplish the mission. He continued that a valid theory of the business has
four specifications: 1) assumptions about the environment, mission, and core competencies must fit
reality; 2) the assumptions in all three areas have to fit one another; 3) the theory of the business must
be known and understood throughout the organization; and 4) the theory of the business has to be
tested constantly.

He wrote that organizations get into trouble when the assumptions representing the theory of the
business no longer fit reality. He used an example of retail department stores, where their theory of the
business assumed that people who could afford to shop in department stores would do so. However,
many shoppers abandoned department stores in favor of specialty retailers (often located outside of
malls) when time became the primary factor in the shopping destination rather than income.

Drucker described the theory of the business as a "hypothesis" and a "discipline." He advocated building
in systematic diagnostics, monitoring and testing of the assumptions comprising the theory of the
business to maintain competitiveness.[34]

Strategic thinking
Main article: Strategic thinking

Strategic thinking involves the generation and application of unique business insights to opportunities
intended to create competitive advantage for a firm or organization. It involves challenging the
assumptions underlying the organization's strategy and value proposition. Mintzberg wrote in 1994 that
it is more about synthesis (i.e., "connecting the dots") than analysis (i.e., "finding the dots"). It is about
"capturing what the manager learns from all sources (both the soft insights from his or her personal
experiences and the experiences of others throughout the organization and the hard data from market
research and the like) and then synthesizing that learning into a vision of the direction that the business
should pursue." Mintzberg argued that strategic thinking is the critical part of formulating strategy,
more so than strategic planning exercises.[35]

General Andre Beaufre wrote in 1963 that strategic thinking "is a mental process, at once abstract and
rational, which must be capable of synthesizing both psychological and material data. The strategist
must have a great capacity for both analysis and synthesis; analysis is necessary to assemble the data on
which he makes his diagnosis, synthesis in order to produce from these data the diagnosis itself--and the
diagnosis in fact amounts to a choice between alternative courses of action."[36]

Will Mulcaster[37] argued that while much research and creative thought has been devoted to generating
alternative strategies, too little work has been done on what influences the quality of strategic decision
making and the effectiveness with which strategies are implemented. For instance, in retrospect it can
be seen that the financial crisis of 2008–9 could have been avoided if the banks had paid more attention
to the risks associated with their investments, but how should banks change the way they make
decisions to improve the quality of their decisions in the future? Mulcaster's Managing Forces
framework addresses this issue by identifying 11 forces that should be incorporated into the processes
of decision making and strategic implementation. The 11 forces are: Time; Opposing forces; Politics;
Perception; Holistic effects; Adding value; Incentives; Learning capabilities; Opportunity cost; Risk and
Style.

Strategic planning
Main article: Strategic planning

Strategic planning is a means of administering the formulation and implementation of strategy. Strategic
planning is analytical in nature and refers to formalized procedures to produce the data and analyses
used as inputs for strategic thinking, which synthesizes the data resulting in the strategy. Strategic
planning may also refer to control mechanisms used to implement the strategy once it is determined. In
other words, strategic planning happens around the strategy formation process.[11]

Environmental analysis

Porter wrote in 1980 that formulation of competitive strategy includes consideration of four key
elements:

1. Company strengths and weaknesses;

2. Personal values of the key implementers (i.e., management and the board);
3. Industry opportunities and threats; and
4. Broader societal expectations.[17]

The first two elements relate to factors internal to the company (i.e., the internal environment), while
the latter two relate to factors external to the company (i.e., the external environment).[17]

There are many analytical frameworks which attempt to organize the strategic planning process.
Examples of frameworks that address the four elements described above include:

 External environment: PEST analysis or STEEP analysis is a framework used to examine the
remote external environmental factors that can affect the organization, such as political,
economic, social/demographic, and technological. Common variations include SLEPT, PESTLE,
STEEPLE, and STEER analysis, each of which incorporates slightly different emphases.
 Industry environment: The Porter Five Forces Analysis framework helps to determine the
competitive rivalry and therefore attractiveness of a market. It is used to help determine the
portfolio of offerings the organization will provide and in which markets.
 Relationship of internal and external environment: SWOT analysis is one of the most basic and
widely used frameworks, which examines both internal elements of the organization —
Strengths and Weaknesses — and external elements — Opportunities and Threats. It helps
examine the organization's resources in the context of its environment.

Scenario planning

A number of strategists use scenario planning techniques to deal with change. The way Peter Schwartz
put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive
advantage cannot be predetermined.[38] The fast changing business environment is too uncertain for us
to find sustainable value in formulas of excellence or competitive advantage. Instead, scenario planning
is a technique in which multiple outcomes can be developed, their implications assessed, and their
likeliness of occurrence evaluated. According to Pierre Wack, scenario planning is about insight,
complexity, and subtlety, not about formal analysis and numbers.[39]

Some business planners are starting to use a complexity theory approach to strategy. Complexity can be
thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that rapidly
become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting in
such a way that a glimpse of structure may appear.

Measuring and controlling implementation

Generic Strategy Map illustrating four elements of a balanced scorecard

Once the strategy is determined, various goals and measures may be established to chart a course for
the organization, measure performance and control implementation of the strategy. Tools such as the
balanced scorecard and strategy maps help crystallize the strategy, by relating key measures of success
and performance to the strategy. These tools measure financial, marketing, production, organizational
development, and innovation measures to achieve a 'balanced' perspective. Advances in information
technology and data availability enable the gathering of more information about performance, allowing
managers to take a much more analytical view of their business than before.

Strategy may also be organized as a series of "initiatives" or "programs", each of which comprises one or
more projects. Various monitoring and feedback mechanisms may also be established, such as regular
meetings between divisional and corporate management to control implementation.

Evaluation

A key component to strategic management which is often overlooked when planning is evaluation.
There are many ways to evaluate whether or not strategic priorities and plans have been achieved, one
such method is Robert Stake's Responsive Evaluation.[40] Responsive evaluation provides a naturalistic
and humanistic approach to program evaluation. In expanding beyond the goal-oriented or pre-ordinate
evaluation design, responsive evaluation takes into consideration the program’s background (history),
conditions, and transactions among stakeholders. It is largely emergent, the design unfolds as contact is
made with stakeholders.

Limitations

While strategies are established to set direction, focus effort, define or clarify the organization, and
provide consistency or guidance in response to the environment, these very elements also mean that
certain signals are excluded from consideration or de-emphasized. Mintzberg wrote in 1987: "Strategy is
a categorizing scheme by which incoming stimuli can be ordered and dispatched." Since a strategy
orients the organization in a particular manner or direction, that direction may not effectively match the
environment, initially (if a bad strategy) or over time as circumstances change. As such, Mintzberg
continued, "Strategy [once established] is a force that resists change, not encourages it."[10]
Therefore, a critique of strategic management is that it can overly constrain managerial discretion in a
dynamic environment. "How can individuals, organizations and societies cope as well as possible with ...
issues too complex to be fully understood, given the fact that actions initiated on the basis of
inadequate understanding may lead to significant regret?"[41] Some theorists insist on an iterative
approach, considering in turn objectives, implementation and resources.[42] I.e., a "...repetitive learning
cycle [rather than] a linear progression towards a clearly defined final destination."[43] Strategies must be
able to adjust during implementation because "humans rarely can proceed satisfactorily except by
learning from experience; and modest probes, serially modified on the basis of feedback, usually are the
best method for such learning."[44]

In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the
strategies being used by rivals in greatly differing circumstances. He lamented that successful strategies
are imitated by firms that do not understand that for a strategy to work, it must account for the specifics
of each situation.[45] Woodhouse and Collingridge claim that the essence of being “strategic” lies in a
capacity for "intelligent trial-and error"[44] rather than strict adherence to finely honed strategic plans.
Strategy should be seen as laying out the general path rather than precise steps.[46] Means are as likely
to determine ends as ends are to determine means.[47] The objectives that an organization might wish to
pursue are limited by the range of feasible approaches to implementation. (There will usually be only a
small number of approaches that will not only be technically and administratively possible, but also
satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible
implementation approaches is determined by the availability of resources.

Strategic themes

Various strategic approaches used across industries (themes) have arisen over the years. These include
the shift from product-driven demand to customer- or marketing-driven demand (described above), the
increased use of self-service approaches to lower cost, changes in the value chain or corporate structure
due to globalization (e.g., off-shoring of production and assembly), and the internet.

Self-service

One theme in strategic competition has been the trend towards self-service, often enabled by
technology, where the customer takes on a role previously performed by a worker to lower the price.[6]
Examples include:

 Automated teller machine (ATM) to obtain cash rather via a bank teller;
 Self-service at the gas pump rather than with help from an attendant;
 Retail internet orders input by the customer rather than a retail clerk, such as online book sales;
 Mass-produced ready-to-assemble furniture transported by the customer; and
 Self-checkout at the grocery store.
 Online banking and bill payment.[48]

Globalization and the virtual firm

One definition of globalization refers to the integration of economies due to technology and supply
chain process innovation. Companies are no longer required to be vertically integrated (i.e., designing,
producing, assembling, and selling their products). In other words, the value chain for a company's
product may no longer be entirely within one firm; several entities comprising a virtual firm may exist to
fulfill the customer requirement. For example, some companies have chosen to outsource production to
third parties, retaining only design and sales functions inside their organization.[6]

Internet and information availability

The internet has dramatically empowered consumers and enabled buyers and sellers to come together
with drastically reduced transaction and intermediary costs, creating much more robust marketplaces
for the purchase and sale of goods and services. Examples include online auction sites, internet dating
services, and internet book sellers. In many industries, the internet has dramatically altered the
competitive landscape. Services that used to be provided within one entity (e.g., a car dealership
providing financing and pricing information) are now provided by third parties.[49]

Author Phillip Evans said in 2013 that networks are challenging traditional hierarchies. Value chains may
also be breaking up ("deconstructing") where information aspects can be separated from functional
activity. Data that is readily available for free or very low cost makes it harder for information-based,
vertically integrated businesses to remain intact. Evans said: "The basic story here is that what used to
be vertically integrated, oligopolistic competition among essentially similar kinds of competitors is
evolving, by one means or another, from a vertical structure to a horizontal one. Why is that happening?
It's happening because transaction costs are plummeting and because scale is polarizing. The
plummeting of transaction costs weakens the glue that holds value chains together, and allows them to
separate." He used Wikipedia as an example of a network that has challenged the traditional
encyclopedia business model.[50] Evans predicts the emergence of a new form of industrial organization
called a "stack", analogous to a technology stack, in which competitors rely on a common platform of
inputs (services or information), essentially layering the remaining competing parts of their value chains
on top of this common platform.[51]

Strategy as learning
See also: Organizational learning

In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, popularized de Geus'
notion of the "learning organization".[52] The theory is that gathering and analyzing information is a
necessary requirement for business success in the information age. To do this, Senge claimed that an
organization would need to be structured such that:[53]

 People can continuously expand their capacity to learn and be productive.

 New patterns of thinking are nurtured.
 Collective aspirations are encouraged.
 People are encouraged to see the “whole picture” together.

Senge identified five disciplines of a learning organization. They are:

 Personal responsibility, self-reliance, and mastery — We accept that we are the masters of our
own destiny. We make decisions and live with the consequences of them. When a problem
needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills
to get it done.
  Mental models — We need to explore our personal mental models to understand the subtle
effect they have on our behaviour.
 Shared vision — The vision of where we want to be in the future is discussed and communicated
to all. It provides guidance and energy for the journey ahead.
 Team learning — We learn together in teams. This involves a shift from “a spirit of advocacy to a
spirit of enquiry”.
 Systems thinking — We look at the whole rather than the parts. This is what Senge calls the
“Fifth discipline”. It is the glue that integrates the other four into a coherent strategy. For an
alternative approach to the “learning organization”, see Garratt, B. (1987).

Geoffrey Moore (1991) and R. Frank and P. Cook[54] also detected a shift in the nature of competition.
Markets driven by technical standards or by "network effects" can give the dominant firm a near-
monopoly.[55] The same is true of networked industries in which interoperability requires compatibility
between users. Examples include Internet Explorer's and Amazon's early dominance of their respective
industries. IE's later decline shows that such dominance may be only temporary.

Moore showed how firms could attain this enviable position by using E.M. Rogers' five stage adoption
process and focusing on one group of customers at a time, using each group as a base for reaching the
next group. The most difficult step is making the transition between introduction and mass acceptance.
(See Crossing the Chasm). If successful a firm can create a bandwagon effect in which the momentum
builds and its product becomes a de facto standard.

Strategy as adapting to change

In 1969, Peter Drucker coined the phrase Age of Discontinuity to describe the way change disrupts
lives.[56] In an age of continuity attempts to predict the future by extrapolating from the past can be
accurate. But according to Drucker, we are now in an age of discontinuity and extrapolating is
ineffective. He identifies four sources of discontinuity: new technologies, globalization, cultural pluralism
and knowledge capital.

In 1970, Alvin Toffler in Future Shock described a trend towards accelerating rates of change.[57] He
illustrated how social and technical phenomena had shorter lifespans with each generation, and he
questioned society's ability to cope with the resulting turmoil and accompanying anxiety. In past eras
periods of change were always punctuated with times of stability. This allowed society to assimilate the
change before the next change arrived. But these periods of stability had all but disappeared by the late
20th century. In 1980 in The Third Wave, Toffler characterized this shift to relentless change as the
defining feature of the third phase of civilization (the first two phases being the agricultural and
industrial waves).[58]

In 1978, Derek F. Abell (Abell, D. 1978) described "strategic windows" and stressed the importance of
the timing (both entrance and exit) of any given strategy. This led some strategic planners to build
planned obsolescence into their strategies.[59]

In 1983, Noel Tichy wrote that because we are all beings of habit we tend to repeat what we are
comfortable with.[60] He wrote that this is a trap that constrains our creativity, prevents us from
exploring new ideas, and hampers our dealing with the full complexity of new issues. He developed a
systematic method of dealing with change that involved looking at any new issue from three angles:
technical and production, political and resource allocation, and corporate culture.

In 1989, Charles Handy identified two types of change.[61] "Strategic drift" is a gradual change that occurs
so subtly that it is not noticed until it is too late. By contrast, "transformational change" is sudden and
radical. It is typically caused by discontinuities (or exogenous shocks) in the business environment. The
point where a new trend is initiated is called a "strategic inflection point" by Andy Grove. Inflection
points can be subtle or radical.

In 1990, Richard Pascale wrote that relentless change requires that businesses continuously reinvent
themselves.[62] His famous maxim is “Nothing fails like success” by which he means that what was a
strength yesterday becomes the root of weakness today, We tend to depend on what worked yesterday
and refuse to let go of what worked so well for us in the past. Prevailing strategies become self-
confirming. To avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate. They
must encourage a creative process of self-renewal based on constructive conflict.

In 1996, Adrian Slywotzky showed how changes in the business environment are reflected in value
migrations between industries, between companies, and within companies.[63] He claimed that
recognizing the patterns behind these value migrations is necessary if we wish to understand the world
of chaotic change. In “Profit Patterns” (1999) he described businesses as being in a state of strategic
anticipation as they try to spot emerging patterns. Slywotsky and his team identified 30 patterns that
have transformed industry after industry.[64]

In 1997, Clayton Christensen (1997) took the position that great companies can fail precisely because
they do everything right since the capabilities of the organization also define its disabilities.[65]
Christensen's thesis is that outstanding companies lose their market leadership when confronted with
disruptive technology. He called the approach to discovering the emerging markets for disruptive
technologies agnostic marketing, i.e., marketing under the implicit assumption that no one – not the
company, not the customers – can know how or in what quantities a disruptive product can or will be
used without the experience of using it.

In 1999, Constantinos Markides reexamined the nature of strategic planning.[66] He described strategy
formation and implementation as an ongoing, never-ending, integrated process requiring continuous
reassessment and reformation. Strategic management is planned and emergent, dynamic and
interactive.

J. Moncrieff (1999) stressed strategy dynamics.[67] He claimed that strategy is partially deliberate and
partially unplanned. The unplanned element comes from emergent strategies that result from the
emergence of opportunities and threats in the environment and from "strategies in action" (ad hoc
actions across the organization).

David Teece pioneered research on resource-based strategic management and the dynamic capabilities
perspective, defined as “the ability to integrate, build, and reconfigure internal and external
competencies to address rapidly changing environments".[68] His 1997 paper (with Gary Pisano and Amy
Shuen) "Dynamic Capabilities and Strategic Management" was the most cited paper in economics and
business for the period from 1995 to 2005.[69]
In 2000, Gary Hamel discussed strategic decay, the notion that the value of every strategy, no matter
how brilliant, decays over time.[45]

Strategy as operational excellence

Quality

A large group of theorists felt the area where western business was most lacking was product quality.
W. Edwards Deming,[70] Joseph M. Juran,[71] A. Kearney,[72] Philip Crosby[73] and Armand Feignbaum[74]
suggested quality improvement techniques such total quality management (TQM), continuous
improvement (kaizen), lean manufacturing, Six Sigma, and return on quality (ROQ).

Contrarily, James Heskett (1988),[75] Earl Sasser (1995), William Davidow,[76] Len Schlesinger,[77] A.
Paraurgman (1988), Len Berry,[78] Jane Kingman-Brundage,[79] Christopher Hart, and Christopher
Lovelock (1994), felt that poor customer service was the problem. They gave us fishbone diagramming,
service charting, Total Customer Service (TCS), the service profit chain, service gaps analysis, the service
encounter, strategic service vision, service mapping, and service teams. Their underlying assumption
was that there is no better source of competitive advantage than a continuous stream of delighted
customers.

Process management uses some of the techniques from product quality management and some of the
techniques from customer service management. It looks at an activity as a sequential process. The
objective is to find inefficiencies and make the process more effective. Although the procedures have a
long history, dating back to Taylorism, the scope of their applicability has been greatly widened, leaving
no aspect of the firm free from potential process improvements. Because of the broad applicability of
process management techniques, they can be used as a basis for competitive advantage.

Carl Sewell,[80] Frederick F. Reichheld,[81] C. Gronroos,[82] and Earl Sasser[83] observed that businesses
were spending more on customer acquisition than on retention. They showed how a competitive
advantage could be found in ensuring that customers returned again and again. Reicheld broadened the
concept to include loyalty from employees, suppliers, distributors and shareholders. They developed
techniques for estimating customer lifetime value (CLV) for assessing long-term relationships. The
concepts begat attempts to recast selling and marketing into a long term endeavor that created a
sustained relationship (called relationship selling, relationship marketing, and customer relationship
management). Customer relationship management (CRM) software became integral to many firms.

Reengineering

Michael Hammer and James Champy felt that these resources needed to be restructured.[84] In a process
that they labeled reengineering, firm's reorganized their assets around whole processes rather than
tasks. In this way a team of people saw a project through, from inception to completion. This avoided
functional silos where isolated departments seldom talked to each other. It also eliminated waste due to
functional overlap and interdepartmental communications.

In 1989 Richard Lester and the researchers at the MIT Industrial Performance Center identified seven
best practices and concluded that firms must accelerate the shift away from the mass production of low
cost standardized products. The seven areas of best practice were:[85]
  Simultaneous continuous improvement in cost, quality, service, and product innovation
 Breaking down organizational barriers between departments
 Eliminating layers of management creating flatter organizational hierarchies.
 Closer relationships with customers and suppliers
 Intelligent use of new technology
 Global focus
 Improving human resource skills

The search for best practices is also called benchmarking.[86] This involves determining where you need
to improve, finding an organization that is exceptional in this area, then studying the company and
applying its best practices in your firm.

Other perspectives on strategy

Strategy as problem solving

Professor Richard P. Rumelt described strategy as a type of problem solving in 2011. He wrote that good
strategy has an underlying structure called a kernel. The kernel has three parts: 1) A diagnosis that
defines or explains the nature of the challenge; 2) A guiding policy for dealing with the challenge; and 3)
Coherent actions designed to carry out the guiding policy.[87] President Kennedy outlined these three
elements of strategy in his Cuban Missile Crisis Address to the Nation of 22 October 1962:

1. Diagnosis: “This Government, as promised, has maintained the closest surveillance of the Soviet
military buildup on the island of Cuba. Within the past week, unmistakable evidence has
established the fact that a series of offensive missile sites is now in preparation on that
imprisoned island. The purpose of these bases can be none other than to provide a nuclear
strike capability against the Western Hemisphere.”
2. Guiding Policy: “Our unswerving objective, therefore, must be to prevent the use of these
missiles against this or any other country, and to secure their withdrawal or elimination from
the Western Hemisphere.”
3. Action Plans: First among seven numbered steps was the following: “To halt this offensive
buildup a strict quarantine on all offensive military equipment under shipment to Cuba is being
initiated. All ships of any kind bound for Cuba from whatever nation or port will, if found to
contain cargoes of offensive weapons, be turned back.”[88]

Active strategic management required active information gathering and active problem solving. In the
early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active management style
that they called management by walking around (MBWA). Senior HP managers were seldom at their
desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact
with key people provided them with a solid grounding from which viable strategies could be crafted.
Management consultants Tom Peters and Robert H. Waterman had used the term in their 1982 book In
Search of Excellence: Lessons From America's Best-Run Companies.[89] Some Japanese managers employ
a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and
Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).
Creative vs analytic approaches

In 2010, IBM released a study summarizing three conclusions of 1500 CEOs around the world: 1)
complexity is escalating, 2) enterprises are not equipped to cope with this complexity, and 3) creativity is
now the single most important leadership competency. IBM said that it is needed in all aspects of
leadership, including strategic thinking and planning.[90]

Similarly, Mckeown argued that over-reliance on any particular approach to strategy is dangerous and
that multiple methods can be used to combine the creativity and analytics to create an "approach to
shaping the future", that is difficult to copy.[91]

Non-strategic management

A 1938 treatise by Chester Barnard, based on his own experience as a business executive, described the
process as informal, intuitive, non-routinized and involving primarily oral, 2-way communications.
Bernard says “The process is the sensing of the organization as a whole and the total situation relevant
to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the
factors of the situation. The terms pertinent to it are “feeling”, “judgement”, “sense”, “proportion”,
“balance”, “appropriateness”. It is a matter of art rather than science.”[92]

In 1973, Mintzberg found that senior managers typically deal with unpredictable situations so they
strategize in ad hoc, flexible, dynamic, and implicit ways. He wrote, “The job breeds adaptive
information-manipulators who prefer the live concrete situation. The manager works in an environment
of stimulus-response, and he develops in his work a clear preference for live action.”[93]

In 1982, John Kotter studied the daily activities of 15 executives and concluded that they spent most of
their time developing and working a network of relationships that provided general insights and specific
details for strategic decisions. They tended to use “mental road maps” rather than systematic planning
techniques.[94]

Daniel Isenberg's 1984 study of senior managers found that their decisions were highly intuitive.
Executives often sensed what they were going to do before they could explain why.[95] He claimed in
1986 that one of the reasons for this is the complexity of strategic decisions and the resultant
information uncertainty.[96]

Zuboff claimed that information technology was widening the divide between senior managers (who
typically make strategic decisions) and operational level managers (who typically make routine
decisions). She alleged that prior to the widespread use of computer systems, managers, even at the
most senior level, engaged in both strategic decisions and routine administration, but as computers
facilitated (She called it “deskilled”) routine processes, these activities were moved further down the
hierarchy, leaving senior management free for strategic decision making.

In 1977, Abraham Zaleznik distinguished leaders from managers. He described leaders as visionaries
who inspire, while managers care about process.[97] He claimed that the rise of managers was the main
cause of the decline of American business in the 1970s and 1980s. Lack of leadership is most damaging
at the level of strategic management where it can paralyze an entire organization.[98]
Dr Maretha Prinsloo developed the Cognitive Process Profile (CPP) psychometric from the work of Elliott
Jacques. The CPP is a computer-based psychometric which profiles a person's capacity for strategic
thinking. It is used worldwide in selecting and developing people for strategic roles.

According to Corner, Kinichi, and Keats,[99] strategic decision making in organizations occurs at two
levels: individual and aggregate. They developed a model of parallel strategic decision making. The
model identifies two parallel processes that involve getting attention, encoding information, storage and
retrieval of information, strategic choice, strategic outcome and feedback. The individual and
organizational processes interact at each stage. For instance, competition-oriented objectives are based
on the knowledge of competing firms, such as their market share.[100]

Strategy as marketing

The 1980s also saw the widespread acceptance of positioning theory. Although the theory originated
with Jack Trout in 1969, it didn’t gain wide acceptance until Al Ries and Jack Trout wrote their classic
book Positioning: The Battle For Your Mind (1979). The basic premise is that a strategy should not be
judged by internal company factors but by the way customers see it relative to the competition. Crafting
and implementing a strategy involves creating a position in the mind of the collective consumer. Several
techniques enabled the practical use of positioning theory. Perceptual mapping for example, creates
visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis,
factor analysis and conjoint analysis are mathematical techniques used to determine the most relevant
characteristics (called dimensions or factors) upon which positions should be based. Preference
regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters
of positions.

In 1992 Jay Barney saw strategy as assembling the optimum mix of resources, including human,
technology and suppliers, and then configuring them in unique and sustainable ways.[101]

James Gilmore and Joseph Pine found competitive advantage in mass customization.[102] Flexible
manufacturing techniques allowed businesses to individualize products for each customer without
losing economies of scale. This effectively turned the product into a service. They also realized that if a
service is mass-customized by creating a “performance” for each individual client, that service would be
transformed into an “experience”. Their book, The Experience Economy,[103] along with the work of
Bernd Schmitt convinced many to see service provision as a form of theatre. This school of thought is
sometimes referred to as customer experience management (CEM).

Information- and technology-driven strategy

Many industries with a high information component are being transformed.[104] For example, Encarta
demolished Encyclopædia Britannica (whose sales have plummeted 80% since their peak of $650 million
in 1990) before it was in turn, eclipsed by collaborative encyclopedias like Wikipedia. The music industry
was similarly disrupted. The technology sector has provided some strategies directly. For example, from
the software development industry agile software development provides a model for shared
development processes.

Peter Drucker conceived of the “knowledge worker” in the 1950s. He described how fewer workers
would do physical labor, and more would apply their minds. In 1984, John Naisbitt theorized that the
future would be driven largely by information: companies that managed information well could obtain
an advantage, however the profitability of what he called “information float” (information that the
company had and others desired) would disappear as inexpensive computers made information more
accessible.

Daniel Bell (1985) examined the sociological consequences of information technology, while Gloria
Schuck and Shoshana Zuboff looked at psychological factors.[105] Zuboff distinguished between
“automating technologies” and “informating technologies”. She studied the effect that both had on
workers, managers and organizational structures. She largely confirmed Drucker's predictions about the
importance of flexible decentralized structure, work teams, knowledge sharing and the knowledge
worker's central role. Zuboff also detected a new basis for managerial authority, based on knowledge
(also predicted by Drucker) which she called “participative management”.[106]

Maturity of planning process

McKinsey & Company developed a capability maturity model in the 1970s to describe the sophistication
of planning processes, with strategic management ranked the highest. The four stages include:

1. Financial planning, which is primarily about annual budgets and a functional focus, with limited
regard for the environment;
2. Forecast-based planning, which includes multi-year budgets and more robust capital allocation
across business units;
3. Externally oriented planning, where a thorough situation analysis and competitive assessment is
performed;
4. Strategic management, where widespread strategic thinking occurs and a well-defined strategic
framework is used.[18]

PIMS study

The long-term PIMS study, started in the 1960s and lasting for 19 years, attempted to understand the
Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. The initial
conclusion of the study was unambiguous: the greater a company's market share, the greater their rate
of profit. Market share provides economies of scale. It also provides experience curve advantages. The
combined effect is increased profits.[107]

The benefits of high market share naturally led to an interest in growth strategies. The relative
advantages of horizontal integration, vertical integration, diversification, franchises, mergers and
acquisitions, joint ventures and organic growth were discussed. Other research indicated that a low
market share strategy could still be very profitable. Schumacher (1973),[108] Woo and Cooper (1982),[109]
Levenson (1984),[110] and later Traverso (2002)[111] showed how smaller niche players obtained very high
returns.