In the period from 1962 to 1972 the W. T. Grant Company nearly doubled its size in square footage and increased its profits from $9 million to $37 million. Four years later, the company went into bankruptcy and its assets were liquidated. In the 1930s, Sears and Montgomery Ward were approximately equal in sales, profits, capability, andpotential. Two decades later, Sears was roughly three times bigger than Ward. Clearly, some strategy choice caused these outcomes. Although these examples are dramatic, nearly ever organization is affected by strategic decision or, sometimes, nondec isions.
This book is concerned with helping managers identify, select, and implement strategies. The intent is to procedures by which they canimprove the quality of their strategic decision making, the chapter begins by defining a business strategy and discussing its components, particularly the concepts of a sustainable competitive advantage and strategic business unit. The process of developing and implement strategies, strategic market management, is then discussed, first from an historical perspective and then of its thrusts and trends.The final section will consider why it is useful to attempt to manage strategically.
This chapter and the two that follow collectively have several functions to perform. First, they identify the approach toward strategy and its management that is taken in this book. Second, they introduce and position most of the concepts and methods that will be … in the book. Third, provide a general overviewand summary. Thus, the reader can productively reread these three chapters as a way to review.
WHAT IS A BUSINESS STRATEGY?
A business strategy, sometimes termed a competitive strategy or simply strategy, is here defined by six elements or dimensions. The first four apply to any business, even if it exits by itself. The remaining two are introduced when the business exists in an organization withother business units. A business strategy specification includes a determination of:
1. The product market in which the business is to compete. The scope of a business is defined by the products it offers and chooses not to offer, by the markets it seeks to serve and not serve, by the competitors with whom it choose to complete and to avoid, and by its level of vertical integration.
2. Levelof investment. Although there are obvious variations and refinements, it is useful to conceptualize the alternatives in the terms of:
* Investing to grow (or enter the product market)
* Invest only to maintain the existing position.
* Milk the business by minimizing investment.
* Recover as much of the assents as possible by liquidating or divesting the business
3. The functionalarea strategies needed to compete in the selected product market. The specific way to compete will usually be characterized by one or more functional area strategies such as a:
* Product line strategy
* Positioning strategy
* Pricing strategy
* Distribution strategy
* Manufacturing strategy
* Logistical strategy
4. The strategic assets or skills which underly the strategyproviding the sustainable competitive advantage (SCA). A strategic skill or, simply, skill, is something a business unit does exceptionally well, such as manufacturing or promotion, which has strategic importance to that business. A strategic asset or, simply, asset, is a resource, such as a brand name or installed customer base, that is strong relative to competitors. Strategy formulation mustconsider the cost and feasibility of generating or maintaining assets or skills that will provide the basis for a sustainable competitive advantage.
Multiple business. Except for the rare focused enterprise, most modern business units share an organization framework with other business units. At the highest level, it may mean a group of diverse divisions each involving many businesses. At the...