Documente Academic
Documente Profesional
Documente Cultură
REPRINT 10407
features strategy & competition
1
Business strategy is at an evolutionary
crossroads. It’s time to resolve the long-
standing tension between the inherent
identity of your organization and the fleeting
nature of your competitive advantage.
TheRIGHT
It’s 8 A.M. in the executive conference room of a The third option would involve transforming the
large global packaged-foods manufacturer (a real com- dynamics of the relevant food sectors by competing
pany, its name withheld to preserve confidentiality). For more aggressively. The company would become a cate-
the past two months, a team made up of 15 senior gory leader by investing in new process technology,
people has been exploring options for growth, winnow- rightsizing operations to push costs down, and complet-
ing them down to three basic strategies. Each is now ing key acquisitions.
summed up in a crisp 20-minute presentation. After the screen goes blank, the CEO leans forward
Photo illustration by Holly Lindem
The first option focuses on innovation. The com- and asks a simple question: “Which strategy would give
pany would rapidly develop and launch many new types us the greatest right to win?” His tone, calm and direct,
of snacks and foods, packaged in new and interesting makes everyone sit up a little straighter. And they prob-
ways, offering leading-edge nutrition and convenience. ably should, for this is the core question underlying
Under the second option, the company would get every business strategy, although it isn’t always phrased
closer to its customers, producing the food people ask that way.
for. It could incorporate ideas gathered online into its A right to win is the ability to engage in any com-
offerings and provide busy working families with cus- petitive market with a better-than-even chance of suc-
tomizable, convenient, and well-balanced meals. cess — not just in the short term, but consistently.
Cesare Mainardi Art Kleiner Disclosure
cesare.mainardi@booz.com kleiner_art@ At least four people named in
is the managing director of strategy-business.com this article have been contrib-
Booz & Company’s North is the editor-in-chief of utors to s+b: Ram Charan,
American business and a strategy+business and the Walter Kiechel, Henry
member of the firm’s executive author of The Age of Heretics: A Mintzberg, and C.K. Prahalad.
committee. He is coauthor, History of the Radical Thinkers Others named in the article
with Paul Leinwand, of The Who Reinvented Corporate have had associations with s+b
Essential Advantage: How to Management (2nd ed., Jossey- staff members, with Booz
Win with a Capabilities-Driven Bass, 2008). & Company, or with its
Strategy (Harvard Business competitors. Where we assess
Press, 2010). individuals’ contributions and
impact, we have tried to do
so independent of any such
associations.
Imagine a coach, observing a player entering a sports History of the New Corporate World (Harvard Business
competition, saying, “That kid has the right to win Press, 2010), in which former Fortune managing editor
features strategy & competition
out there.” Or a teacher, watching a student about to Walter Kiechel recounts the prevailing theories of busi-
take a test, saying, “That student deserves to excel.” ness strategy over the past 50 years, and the stories of the
What they are really saying is, “That contestant is the people who developed them. Drawing on Kiechel’s his-
right player, in the right type of contest, with the precise tory and those of others, such as Henry Mintzberg,
capabilities needed to meet this particular challenge.” Of Bruce Ahlstrand, and Joseph Lampel in Strategy Safari:
course, the contestant will lose at times, but over the The Complete Guide through the Wilds of Strategic
years, a consistent innate advantage will establish itself, Management (2nd ed., FT Prentice Hall, 2009), we have
giving this contestant the ability to pull off seeming mir- created a map of this conceptual landscape, organized
acles while making it all look easy. This essential advan- on the basic principles underlying theories of the right
tage is particularly rare in business — a more free-form to win. (See Exhibit 1.) The map depicts four broad
and unpredictable game than sports or academia. But schools of strategy; each represents a hypothesis about
it is increasingly important at a time of unprecedented the nature of long-term success in a competitive world.
competitiveness.
The phrase right to win may strike some observers The Basic Tension in Strategy
as arrogant. After all, no company has this kind of assur- Business strategy, as we know it today, has a relatively
3
ance handed to it. But that’s precisely the point. The short history. The word strategy was first applied in print
right to win cannot be taken for granted. It must be to mainstream business in 1962, with the publication of
earned. You earn it by making a series of pragmatic Alfred Chandler’s book Strategy and Structure: Chapters
choices that align your most distinctive and important in the History of the Industrial Enterprise (MIT Press).
capabilities with the way you approach your chosen cus- Since then, at least a dozen major trends and ideas have
tomers, and with the discipline to offer only the prod- appeared under the rubric of business strategy, often in
ucts and services that fit. At Booz & Company, where great conflict with one another, often drawing compa-
we call this approach a capabilities-driven strategy, nies in very different directions. Despite their differ-
research and experience have led us to conclude that ences, all four schools of strategy represent attempts to
only high levels of coherence — among market strategy, resolve the same basic underlying problem: the tension
capabilities systems, and a company’s portfolio of offer- between two conflicting business realities.
ings — can give any firm the right to win. The first reality is that advantage is transient. Even
strategy + business issue 61
All corporate strategies are at heart theories about the most formidable market position can be vulnerable
the right to win. That is why, for those trying to under- to technological disruptions, upstart competition, shift-
stand the nature of business success, the history of strat- ing capital flows, new regulatory regimes, political
egy is both helpful and fascinating. One valuable recent changes, and other facets of a chaotic and unpredictable
source is The Lords of Strategy: The Secret Intellectual business environment. As William P. Barnett showed in
Exhibit 1: A Landscape of Strategy Concepts
Each of these four quadrants represents a basic school of thought in authorship: Who is responsible for major strategy decisions? At left
business strategy about the nature of the right to win. Starting at the are those who favor collective choice (strategic thinking is instilled
upper right, the schools are Position (winners select favorable among as many people throughout the company as possible). At right
markets as defined by external forces); Concentration (winners make are those who favor top-down formulation (strategy is developed by
the most of current core strengths and businesses); Execution (winners the few, the designated expert planners and senior executives, while
gain advantage through operational excellence); and Adaptation the rest of the enterprise is dedicated to execution).
(winners develop an overall direction through experimentation and The Y-axis depicts time orientation: the degree to which strategy
rapid change). From the 1960s to today, many companies have is seen as present- or future-oriented. At the top are those who favor
bounced from one quadrant to another. moving toward a long-term destination that may be different from the
The grid itself reflects views of the best approach for developing company’s current position. At the bottom are those who favor letting
business strategy. The X-axis represents the point of view on the company’s strategic direction emerge from its current state.
Michael Porter
Henry Mintzberg Competitive Strategy W. Chan Kim &
The Rise and Fall of 1980 Renée Mauborgne
Strategic Planning Blue Ocean Strategy
1994 2005
Bruce Henderson
Essays
1966 Kenneth Andrews
Source: Walter Kiechel, The Lords of Strategy; Art Kleiner, The Age of Heretics; Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel, Strategy Safari
4
The Red Queen among Organizations: How Competi- forced through organizational practices and conversa-
tiveness Evolves (Princeton University Press, 2008), this tions. Very few companies have thoroughly reinvented
turbulence can never level off into stability; as compa- themselves, and those that have managed it have typi-
nies copy and outdo one another’s proficiencies, the cally had to force many people out, including top exec-
game of business continually becomes more challenging. utives, and to replace them with new recruits chosen for
Rapid economic growth in emerging markets has made a different set of attitudes and skills. Even when leaders
advantage even more transient, bringing billions of peo- recognize the need for change or know that the com-
ple into the global economy, along with hundreds of pany’s survival is at stake, this identity is difficult to shift;
energetic new business competitors. if no deliberate effort is made to refresh it, it can stag-
One might assume that the answer is to become nate to the point where it erodes advantage from with-
completely resilient, morphing to match the changing in. As writers such as Jim Collins, Clayton Christensen,
demands of the market. But companies can’t, because of and Donald Sull have noted, it’s all too easy for estab-
the second reality: Corporate identity is slow to change. lished companies to fall prey to complacency and hubris
The innate qualities of an organization that distinguish (Collins), entrenched customer relationships and dis-
it from all others — its operational processes, culture, ruptive technologies (Christensen), or inertia (Sull).
relationships, and distinctive capabilities — are built up Yet although the “stickiness” of a company’s identity
gradually, decision by decision, and continually rein- is typically regarded as a weakness, it’s also a great source
of strength. No company can survive long, let alone dis- prices, and operational performance. The second reason
tinguish itself, without a rich body of capabilities and a was uncertainty, and the anxiety that went with it. The
features strategy & competition
resonant corporate culture. Indeed, the fundamental economic stability of the early 1960s dissolved into the
enabler of strategy — the source of competitive advan- turbulence of the 1970s and ’80s, striking different
tage — is a distinctive, coherent corporate identity. This components of society with different degrees of prosper-
is the quality that attracts customers, investors, employ- ity and calamity. No company could ever be sure it
ees, and suppliers. It is grounded in internal capabilities would remain on top (even in established industries
(that is, the things your company can do with distinc- such as steel and automobiles), global economies were
tion) and in market realities (that is, the games in which highly interconnected (although it wasn’t always quite
your company chooses to play). clear how they might interact), and corporate decision
The yin and yang of strategic fad and fashion — the making was increasingly constrained by fiercer capital
movement of business leadership from one trend to markets and upstart technologies.
another over the past 50 years — has often led compa- When intuitively obvious decisions fail, people
nies to make incoherent and ineffective moves. The yearn for better guidance. Thus, starting in the mid-
answer is not to keep adopting new theories in hopes 1960s, the idea of strategic planning, with echoes of
of finding the right answer, but to develop your own Napoleon, Carl von Clausewitz, and Sun Tzu, evolved
capabilities-driven strategy: your own theory of coher- into an irresistible business management fashion. In its
5
ence for your business. How do you capture value, now pure form — as delineated by Kenneth Andrews and
and in the future, for your chosen customers? What are Igor Ansoff, the premier authorities on business strategy
your most important capabilities, and how do they fit at that time — a strategy was an overarching plan for
together? How do you align them with your portfolio of growth, usually written up in a formal document and
products and services? The more clearly and strongly endorsed by the CEO, aimed at creating an unassailable
you make these choices, the better your chances of cre- position for the company in the marketplace.
ating a corporate identity that gives you the right to win These early efforts by the position (or positioning)
in the long run. Not surprisingly, each of the four basic school assumed that the right to win would be held
schools of thought in Exhibit 1 (position, execution, by companies that comprehensively analyzed all critical
adaptation, and concentration) has something signifi- factors: external markets, internal capabilities, and the
cant to offer business strategists, so long as they are needs of society. Although Andrews said the goal should
adopted in an appropriately balanced way. be a simple “informing idea” about the direction of
strategy + business issue 61
to compile all this data into elaborate documents, which market share), “dogs” (low growth and share), “question
were debated in annual strategy sessions that became marks” (high growth, low share) and “cash cows” (low
ently true in practice that they are very scale matters, where one or two play- egy concepts is not that they’re wrong;
hard to give up. Yet they can also be ers dominate. But many food and con- they are, in fact, often right. But they
quite dangerous to follow. sumer products sectors are frag- are not universal. Beware any strate-
The first of these misleading ideas menting instead, with room for many gic idea that most other companies
is that “bigger is better.” Since the profitable entrants. In coffee, ready- find beguiling. The right strategic des-
1980s, CPG companies have tried hard to-eat meals, shampoos, and pasta tination is different for every company,
to expand. The conventional wisdom sauces, for example, there are more even in a mature industry like con-
said that the best shareholder returns small companies than there used to sumer packaged goods.
would accrue to companies with huge be; mass and price don’t matter as
brands and the scale to compete in much as perceived quality. In the New —Steffen Lauster (steffen.lauster
developing markets. The second idea York area, jars of Rao’s Homemade @booz.com) is a partner with Booz &
is that “consolidation is inevitable.” marinara sauce (the same sauce Company based in Cleveland.
faculty found themselves in Vevey, Switzerland, during eration (which, at the time, meant the baby boomers).
7
the summer of 1979: William Abernathy, the HBS ex- The attendees looked at him with polite amusement.
pert on auto manufacturing, and Robert Hayes, known “We have all those factors here,” one said, “and our pro-
for his studies of assembly lines. Researching the differ- ductivity is increasing.”
ences between European and U.S. multinationals, Confused and shaken, Hayes began taking regular
Hayes visited a small machine tool manufacturer in hikes and having long conversations with Abernathy,
southern Germany. Sophisticated Americans barely un- who had just arrived in Vevey and saw similar stagnation
derstood computer-aided manufacturing software, but in the U.S. auto industry. Only one explanation made
this firm of 40 people was using it on a daily basis, and sense to them: The reliance on market share and finan-
producing custom-made tools. Other plants in Ger- cial growth as strategic objectives was crippling U.S.
many, Switzerland, France, and even eastern Europe industry. For example, many companies had cut back
were using machine tools in ways that the Americans any initiative that didn’t seem to guarantee rapid returns,
couldn’t match. and the entire U.S. economy was suffering as a result.
strategy + business issue 61
At a seminar that summer, a European businessman Abernathy and Hayes wrote up this conclusion in
asked Hayes why American productivity had declined so an article for the Harvard Business Review (HBR) called
much during the past 10 years. Hayes hauled out the “Managing Our Way to Economic Decline,” published
standard answers: organized labor, government regula- in July/August 1980. It is still one of the magazine’s
tions, the oil crisis, and the attitudes of the younger gen- most requested reprints, and one of the most controver-
sial articles in its history. They had introduced another Although the execution school would be frequently
school of strategic thought, based on the idea that the challenged, it continued to gain influence through the
“value chain” and “five forces” (competitors, customers, one that could offer attractive prices and convenience
suppliers, aspiring entrants, and substitute offerings): even when compared with travel by bus, train, or car.
two frameworks that could be used to analyze the value Sure, operational excellence was involved: Southwest
potential and competitive intensity of any business. had perfected fast turnarounds and friendly customer
Then, in his flagship HBR article called “What Is service. But the core strategic decision was the pursuit of
Strategy?” (November/December 1996) Porter pointed simplicity through a clear market strategy.
out that operational excellence could guarantee compet- The position school became a major driver of the
itive advantage for only a limited time. After that, it too resurgence of corporate competitiveness in the West
would lead to diminishing returns as other companies during the 1980s and ’90s. W. Chan Kim and Renée
caught up. (Indeed, most observers believe that Ford, Mauborgne took the position argument to its extreme
GM, and other Western automobile manufacturers have with Blue Ocean Strategy: How to Create Uncontested
done exactly that between 1980 and 2010; it may have Market Space and Make the Competition Irrelevant
taken them 30 years, but the quality and resale value of (Harvard Business School Press, 2005). Big companies,
their motor vehicles is, as a whole, rising to meet that of they advised, should look for new upstart positions
Toyota and Honda.) themselves, in places where there were no competitors
9
To Porter, execution-oriented ideas like reengineer- already, breaking out of conventional ways of looking at
ing, benchmarking, outsourcing, and change manage- their industry. The popularity of that approach demon-
ment all had the same strategic limit. They all led to strated the pressure that business leaders felt to break
better operations, but ignored the question of which free of established practices and find a niche that they
businesses to operate in the first place. Porter argued for could dominate with first-mover advantage.
picking industries or markets where either overall con- The limits of the position school became evident in
ditions were favorable — where most companies were the 1990s and 2000s. Although Michael Porter took
relatively weak, suppliers had relatively little clout, and pains to explain that industry structures can change and
aspiring entrants were few — or where a company could can be shaped by the actions of leading companies, he
differentiate itself. In “What Is Strategy?” Porter used was interpreted as saying that some industries are in-
Southwest Airlines Company as an example of differen- nately good and others are irredeemably bad. To many
tiation in a relatively unattractive industry. Southwest’s corporate leaders in tough businesses, or in highly regu-
strategy + business issue 61
market power came from the choice not to follow the lated industries like electric power generation, there was
spoke-and-hub routing model of other airlines, but to no real advantage to developing distinctive capabilities
offer “a unique and valuable strategic position” — flying or facility with execution. Some companies tried to
only direct routes, with one type of aircraft, using auto- escape by entering new businesses where they had no
mated ticketing and limited services (for example, no distinctive capabilities, “blue oceans” where they didn’t
Letting a thousand flowers bloom can lead to
a field full of weeds — and to businesses
that can’t match the expertise and resources
of more focused, coherent competitors.
know how to swim. These efforts generally failed. And manufacturing industry. It’s also been the most central
as the 2000s unfolded, companies with enviable market guiding theme of Tom Peters’s work. The companies
would claim the right to win. challenges and limits of their approaches, and even
Chris Zook of Bain & Company, drawing on his warned against misapplying them. But businesspeople
features strategy & competition
firm’s experience with private equity, has been the most misapplied them nonetheless. Each theory thus back-
prominent recent exponent of this school. In his book fired, and created opportunities for the next.
Profit from the Core: A Return to Growth in Turbulent How can your company gain the most from con-
Times (2001, with James Allen; Harvard Business Press, sidering all these theories of the right to win? Only by
2010), he argues that the right to win tends to accrue to stepping back, away from any particular answer, to look
companies that stick to their core businesses and find at your company’s identity as a whole, encompassing the
new ways to exploit them for growth and value. This way you expect to compete, the capabilities with which
means differentiating a company by starting with its cen- you will compete, and the portfolio decisions that fit. In
tral capabilities: Enterprise, Dollar/Thrifty, and Avis all fact, that’s exactly what happens with the packaged-
prospered by focusing on, respectively, rentals for people foods company described at the beginning of this article.
with car repairs, vacationers, and business travelers. The CEO’s question about the right to win has
However, in practice, the concentration strategy sparked many levels of discussion. For several more days,
often becomes a way of holding on to old approaches, spread over a few weeks, the executive team talks
even when they become outdated. Many companies through its three proposed strategies in detail: the esti-
(and private equity firms) translate this strategy into mated market value of each, the risks involved,
11
slash-and-burn retrenchment. They cut costs and mini- and the capabilities required. All three strategies have
mize investments in R&D and marketing to create a roughly the same potential for increasing enterprise
pared-down company that produces more profits at value, but the differences among them become clear
first, but that can’t sustain the growth required for a when the functional leaders speak.
healthy bottom line. When they seek to grow, it’s For example, the head of operations explains that
through “adjacencies”: products or services that seem the three strategies would require completely different
related to their existing core businesses. But many adja- investments. Becoming an innovator would mean con-
cencies are less profitable than they were expected to be, figuring a flexible value chain to launch new products
in part because they may require very different capabili- rapidly and economically. The closer-to-customers
ties — and in part because the truly successful game- option would mean selling more food at different tem-
changing leaps, like Apple’s into consumer media or peratures: some frozen, some fresh. It would also mean
Tata’s into the inexpensive Nano automobile, can’t be building a more direct, collaborative relationship be-
strategy + business issue 61
managed from a concentration strategy alone. tween operations and R&D. And the category transfor-
mation strategy would require new process technologies,
Strategy as a Way of Life economies of scale, and deftly managed acquisitions.
It’s important to note that most of the thinkers who The head of marketing and sales has a similar pres-
introduced these strategies to business leaders saw the entation. As an innovator, the company would focus
advertising and promotion on new products, while stances — and that we have the tools to do so. Given the
ensuring rapid, widespread retail distribution. Being a pressures that business continues to face, this leap in
www.strategy-business.com
www.facebook.com/strategybusiness
101 Park Ave., 20th Floor, New York, NY 10178