Strategy
A firm’s strategy explains where it is going and how it intends to get there – it involves figuring out where to play (which products to sell to which customers) and how to play (how it positions itself against its competitors). There are many views about how to define strategy – the famous management thinker, Henry Mintzberg, once identified ten different models and perspectives. This section focuses on five of the most well-known ones.
Perhaps the most popular starting point on strategy is Michael Porter’s five forces analysis. This approach says a firm should define its strategy by first of all understanding the structure of the industry it is competing in, and then choosing a position within that industry that is most defensible for long-term competitive advantage. A related perspective that builds on the importance of competition between firms is game theory and specifically the notion of the prisoner’s dilemma. This view suggests that a firm’s chosen strategy is not determined in isolation. Rather, it should be seen as a dynamic ‘game’, where the best choice is partly a function of the choices made by others.
This competitive perspective is very valuable, but it is almost entirely externally focused. An alternative perspective, which became increasingly important through the 1990s, was to look inside the firm and to understand how its internal resources and capabilities could become a source of advantage (core competence and the resource-based view). More recently, attention has shifted away from the search for sustainable, long-term advantage in established markets, and towards opening up new markets where traditional competitive dynamics do not apply (blue ocean strategy).
All of these models are concerned with the strategy of an individual business. But many firms are actually operating in multiple businesses at the same time, so there are also some important models that help make sense of this type of complexity. The classic model here is the BCG growth–share matrix, which is a useful way of making sense of the variety of businesses in a firm’s portfolio. This model has given way in recent years to other more sophisticated models for understanding corporate or group-level strategy.