The more clearly and strongly you make these choices, the better your chances of creating a corporate identity that gives you the right to win in the long run. Not surprisingly, each of the four basic schools of thought in Exhibit 1 position, execution, adaptation, and concentration has something significant to offer business strategists, so long as they are adopted in an appropriately balanced way.
According to Walter Kiechel, strategy became relatively formal in the s for two reasons. The first was an increasing amount of available data on business costs, prices, and operational performance. The second reason was uncertainty, and the anxiety that went with it. When intuitively obvious decisions fail, people yearn for better guidance.
Thus, starting in the mids, the idea of strategic planning, with echoes of Napoleon, Carl von Clausewitz, and Sun Tzu, evolved into an irresistible business management fashion. In its pure form — as delineated by Kenneth Andrews and Igor Ansoff, the premier authorities on business strategy at that time — a strategy was an overarching plan for growth, usually written up in a formal document and endorsed by the CEO, aimed at creating an unassailable position for the company in the marketplace.
These early efforts by the position or positioning school assumed that the right to win would be held by companies that comprehensively analyzed all critical factors: external markets, internal capabilities, and the needs of society. This was long before the invention of the spreadsheet program, so big companies hired armies of planning staffers to compile all this data into elaborate documents, which were debated in annual strategy sessions that became exercises in bureaucratic complexity. Only gradually did it become clear that the plans did not correlate with real-world performance or issues.
The phenomenon was hardly noticeable month by month, but every few years, capacity doubled and costs dropped 10 to 30 percent, so reliably that many companies could plan their investment cycles and competitive marketing accordingly. For example, Texas Instruments Inc. TI cut the prices of its semiconductor chips and electronic calculators every few months. Sales rose as customers switched to TI from competitors, and production costs then fell further, which allowed TI to drop prices even more. Even the billing procedures and advertising budgets became more efficient as those departments managed greater volumes.
To Henderson, the right to win went to companies that made the best use of the experience curve by holding the leading position in market share for their sectors. For instance, it was worth borrowing money to keep a star shining, because a star might end up dominating its market niche.
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The experience curve and growth-share matrix rapidly became popular because they worked powerfully well — at first. This led many companies into counterproductive strategies. Some, including Texas Instruments, got caught up in ruthless price wars that contributed to the commoditization of their own products. More generally, many business leaders became disenchanted with the idea of formal strategic planning. In the aftermath of these and other sharp reversals, mainstream business leaders began to question the wisdom of the position school, and its claim on the right to win.
Those most annoyed by the position school tended to be in production and operations. Two members of the faculty found themselves in Vevey, Switzerland, during the summer of William Abernathy, the HBS expert on auto manufacturing, and Robert Hayes, known for his studies of assembly lines. Researching the differences between European and U.
Sophisticated Americans barely understood computer-aided manufacturing software, but this firm of 40 people was using it on a daily basis, and producing custom-made tools. At a seminar that summer, a European businessman asked Hayes why American productivity had declined so much during the past 10 years.
Hayes hauled out the standard answers: organized labor, government regulations, the oil crisis, and the attitudes of the younger generation which, at the time, meant the baby boomers. The attendees looked at him with polite amusement. Confused and shaken, Hayes began taking regular hikes and having long conversations with Abernathy, who had just arrived in Vevey and saw similar stagnation in the U.
Only one explanation made sense to them: The reliance on market share and financial growth as strategic objectives was crippling U. They had introduced another school of strategic thought, based on the idea that the right to win came from execution and operational excellence: the development and deployment of better practices, processes, technologies, and products.
The execution message was bolstered by companies such as General Electric and Motorola, which provided influential examples of operations-oriented strategies with their reliance on executive training and such practices as Six Sigma. Edwards Deming. Deming was an American statistician born in He began consulting regularly in Japan just after World War II, helping Japanese companies develop their production systems. Deming saw his methods as critical for escaping economic malaise his most prominent book was titled Out of the Crisis [MIT Press, ].
By the end of the s, execution-based strategy had been largely relegated to the production side of the business. The idea of building value through managerial methods returned to strategic relevance after the dot-com bubble burst. Many leaders now understood, through experience, both the value of improving execution and its challenges. It generally required major changes in managerial and employee behavior. In his early publications, from the late s to the early s, Porter brought positioning to a level of unprecedented sophistication. After that, it too would lead to diminishing returns as other companies caught up.
Indeed, most observers believe that Ford, GM, and other Western automobile manufacturers have done exactly that between and ; it may have taken them 30 years, but the quality and resale value of their motor vehicles is, as a whole, rising to meet that of Toyota and Honda. To Porter, execution-oriented ideas like reengineering, benchmarking, outsourcing, and change management all had the same strategic limit. They all led to better operations, but ignored the question of which businesses to operate in the first place.
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Porter argued for picking industries or markets where either overall conditions were favorable — where most companies were relatively weak, suppliers had relatively little clout, and aspiring entrants were few — or where a company could differentiate itself. These and other strategic choices allowed the airline to operate a different type of flying business, one that could offer attractive prices and convenience even when compared with travel by bus, train, or car. Sure, operational excellence was involved: Southwest had perfected fast turnarounds and friendly customer service.
But the core strategic decision was the pursuit of simplicity through a clear market strategy. Big companies, they advised, should look for new upstart positions themselves, in places where there were no competitors already, breaking out of conventional ways of looking at their industry. The popularity of that approach demonstrated the pressure that business leaders felt to break free of established practices and find a niche that they could dominate with first-mover advantage.
The limits of the position school became evident in the s and s. Although Michael Porter took pains to explain that industry structures can change and can be shaped by the actions of leading companies, he was interpreted as saying that some industries are innately good and others are irredeemably bad. To many corporate leaders in tough businesses, or in highly regulated industries like electric power generation, there was no real advantage to developing distinctive capabilities or facility with execution.
These efforts generally failed. And as the s unfolded, companies with enviable market positions, such as Microsoft, also saw their advantage fade when new competitors, such as Google, emerged. Starting in the s, another group of strategy thinkers provided an alternative to the position and execution schools. This was the idea of strategy as perpetual adaptation, best represented by Henry Mintzberg, professor of management studies at McGill University. He acknowledged that execution was important, and much of his work was dedicated to analyzing what managers did in practice, but, like Porter, he felt execution was insufficient for success.
His strategic approach centered on finding a more creative, experimental approach to executive decision making. Thus, instead of analysis and planning, executives in the adaptation school or, as Mintzberg called it, the learning school sought to gain the right to win by experimenting with new directions. But the adaptation school is also seriously limited, because its freewheeling nature tends to lead to incoherence.
A multitude of products and services that all have different capability needs and different market positions cannot possibly be brought into sync.
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Hence the appeal of the fourth group of strategy thinkers — the concentration school. Its forerunners were Gary Hamel and C. In his book Profit from the Core: A Return to Growth in Turbulent Times , with James Allen; Harvard Business Press, , he argues that the right to win tends to accrue to companies that stick to their core businesses and find new ways to exploit them for growth and value.
However, in practice, the concentration strategy often becomes a way of holding on to old approaches, even when they become outdated. Many companies and private equity firms translate this strategy into slash-and-burn retrenchment. But businesspeople misapplied them nonetheless. Each theory thus backfired, and created opportunities for the next. How can your company gain the most from considering all these theories of the right to win?
For several more days, spread over a few weeks, the executive team talks through its three proposed strategies in detail: the estimated market value of each, the risks involved, and the capabilities required. All three strategies have roughly the same potential for increasing enterprise value, but the differences among them become clear when the functional leaders speak. For example, the head of operations explains that the three strategies would require completely different investments.
Becoming an innovator would mean configuring a flexible value chain to launch new products rapidly and economically. The closer-to-customers option would mean selling more food at different temperatures: some frozen, some fresh. And the category transformation strategy would require new process technologies, economies of scale, and deftly managed acquisitions.
The head of marketing and sales has a similar presentation. As an innovator, the company would focus advertising and promotion on new products, while ensuring rapid, widespread retail distribution. Being a solutions provider would move the company directly into engagement with consumers, through websites, social media, and better in-store displays. The company executives ultimately settle on the category leader strategy.
It fits best with the capabilities that they already have. Another company, even with the same market dynamics, might choose differently — appropriately so, because of very different capabilities and customs. LinkedIn, Facebook, Google and Amazon—in fact most technology businesses—have platform-based business models. Physical platforms in other industries refer to product family or product portfolio platforms intended to reduce manufacturing and development costs for new products.
In this case a platform is a common architecture, collection of assets, component designs, subsystems, or other elements shared by several products. Given that the components and subsystems have already been debugged and tested, the resulting products should have higher quality. Since platform development occurs less frequently than product development, major platform decisions do not need to be made as often.
This has the potential to foster lean product development. However, there are downsides: high upfront costs, risk of platform obsolescence, risk of platform recall affecting numerous products, and potential duplication of effort. From Wikipedia, the free encyclopedia.
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