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 / Spring 2010 / Issue 58(originally published by Booz & Company)


Seven Chapters of Strategic Wisdom

The Competitive Position

To sensibilities hardened by the corporate wars of the last 30 years, one omission by Andrews and Chandler stands out: They barely mention competition. Ah, for the halcyon days, extending for a couple of decades after the end of the Second World War, when the biggest companies (most of which were American) didn’t have to worry about such annoyances. By the time Michael E. Porter published Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980, that world was gone. And a message that management consultants had been trying to hammer home for a decade or more had finally begun to penetrate even the most refractory corporate minds: The main point of crafting a strategy was to achieve competitive advantage.

“Generic Competitive Strategies,” the lyrically titled second chapter of Porter’s famous opus (now in its 60th-plus printing) is notable in at least three respects. For starters, as Porter admits, it’s the only chapter in the book that is actually about strategy. The rest all focus on teaching the reader how to analyze industries. And whereas Andrews had resolutely refused to be prescriptive — he declined to lay out examples of particular strategies that might suit companies in particular situations, and indeed didn’t seem to believe that identifiable strategic archetypes even existed — Porter was bracingly clear that you probably had only three alternatives.

First, you could pursue overall cost leadership, essentially aiming to be the low-cost producer in an industry. (As examples Porter cited Briggs & Stratton in small-horsepower electric engines and Lincoln Electric in arc-welding equipment.) This should also mean that you were a market-share leader, your size affording a cost advantage that smaller players were never likely to catch up with. Second, you could seek differentiation, turning out a product or service perceived as unique (Caterpillar Tractor in construction equipment). Third, you could choose to focus, concentrating all your efforts on a particular set of buyers, a geographic territory, or a product segment (Illinois Tool Works in specialty markets for fasteners). And woe betide the company “stuck in the middle,” as Porter put it; if you hadn’t achieved advantage in one of the three ways but persisted in combining a little of each, you would be headed for nothing but trouble.

Despite the fact that it’s a mere 13 pages long, Porter’s Chapter 2 also provides what is in effect a handy recap of some concepts that had sparked interest in strategy over the preceding decade. For example, his cost-leadership option builds on the menacing logic of the experience curve, a construct advanced by BCG. The experience curve posited that any company’s overall costs would decline predictably the more it focused on one particular category of product. With the accumulated experience of turning it out, the capabilities of the company increased. The competitor with the most experience should thus be able to produce the best product at the lowest cost, which advantage it should be able to perpetuate by maintaining the largest market share and continuing to drive down the curve faster than its rivals.

An Emergent Backlash

Only two years after Porter’s book appeared, the modern strategy revolution had been under way long enough to provoke a backlash. In Search of Excellence: Lessons from America’s Best-Run Companies, published in 1982, is chiefly remembered today for its sales — around 6 million copies — a few management lessons (stick to your knitting, stay close to the customer), and the fact that in short order a hefty percentage of the best-run companies featured therein fell off their pedestals. (Where is the Data General, Digital Equipment, or Westinghouse of yesteryear?) But authors Thomas J. Peters and Robert H. Waterman Jr. also offered up one of the first powerful critiques of strategy as an exercise in numbers and charts, one that neglected the human energies and aspirations necessary to make any business go.

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Strategy Resources:
Works mentioned in this review.

  1. Alfred D. Chandler Jr., Strategy and Structure: Chapters in the History of the American Industrial Enterprise (MIT Press, 1962), 478 pages: Introduction
  2. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones-Irwin, 1971), 264 pages: Chapter 2, “The Concept of Corporate Strategy”
  3. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980), 416 pages: Chapter 2, “Generic Competitive Strategies”
  4. Thomas J. Peters and Robert H. Waterman Jr., In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982), 386 pages: Chapter 2, “The Rational Model”
  5. Richard N. Foster, Innovation: The Attacker’s Advantage (Summit Books, 1986), 316 pages: Chapter 4, “The S-Curve: A New Forecasting Tool”
  6. Andrew S. Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company (Currency Doubleday, 1996), 222 pages: Chapter 5, “‘Why Not Do It Ourselves?’”
  7. Henry Mintzberg, The Rise and Fall of Strategic Planning (Free Press, 1994), 478 pages: Chapter 5, “Fundamental Fallacies of Strategic Planning”
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