AbstractIn 2002, Respironics, Inc. was at a turning point in.docx

Abstract
In 2002, Respironics, Inc. was at a turning point in its
history. Changing market conditions, increased regu-
lation and growing competition prompted executive
management to commission a project to develop a sus-
tainable business strategy capable of delivering consis-
tent and predictable growth. This paper outlines the
major steps, decision points, and challenges encoun-
tered during the creation and implementation of this
strategy. Particular emphasis is placed on the central
role articulating a “Strategic Intent” played in achiev-
ing success.
Background
Respironics, Inc. is today the recognized leader in pro-
viding innovative solutions to the treatment of sleep
and respiratory disordersi. Established in 1976, the
business built a reputation of bringing several innova-
tive solutions to patients, helping them sleep and
breathe easier. Most notably, the first commercially
available treatment for Obstructive Sleep Apnea
(OSA), a respiratory ailment resulting in interrupted
breathing cycles during sleep, was introduced and ad-
vanced by Respironics. Through its first 20 years, the
business grew as awareness of sleep disorders and
their treatment began to grow. The business a?racted
the a?ention of both the medical device industry and
Wall Street as it demonstrated steady growth and was
named one of the 200 Best Small Companies by Forbes
Magazine. In 1998, with over 1000 employees and five
operating facilities in the US and two international fa-
cilities, Respironics had captured market leadership in

each of its core markets. However, in 1999 after a
major acquisition, Respironics began to see market
share slip and therefore lost the confidence of Wall
Street as the stock slipped to an all time low of $7 per
share. The Board of Directors took immediate action
to correct course and brought in a new CEO to lead
the business. As Respironics’ products are sold
mainly through distributors, the company began to
differentiate themselves from their competitors by pro-
viding unique services to support the growth of their
customers’ businesses. Many of these medical equip-
ment distributors were locally owned and operated
“mom & pop shops” who provided medical equip-
ment, such as walkers and oxygen, to patients within
their local community. As the competition for prod-
ucts and services increased between these medical
equipment companies, Respironics assisted these busi-
nesses by providing them with business plans, mar-
keting programs, financing, and service arrangements
designed to enhance their business. Respironics fo-
cused on the needs of the customer and began to re-
gain market share and the confidence of Wall Street.
The Board of Directors was not satisfied with this fi-
nancial turn around alone. As they assessed the mar-
ket conditions and the growing number of competitors
for the core OSA market, they were concerned that
even these positive changes would not sustain the de-
sired growth. Therefore, they challenged executive
management to develop a sustainable strategy for
long-term growth and implement that strategy to
drive results in all business units. They tapped the
head of the largest operating division to lead this pro-
jectii and appointed him Chief Strategic Officer (CSO).
He tapped into several individuals from across the

business as well as externally, to assist him in shaping
and implementing that strategy. In hindsight, the
process can be described in five major steps.
Strategic Intent: A Key to Business Strategy
Development and Culture Change
James W. Ice, Respironics, Inc.
O R G A N I Z A T I O N D E V E L O P M E N T J O U R N
A L
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Step One – Define the Desired Strategic Outcome
The greatest challenge of creating and implementing
meaningful strategy was to identify the outcomes of a
successful strategy in an operational way so as to di-
rect action and enable the measurement of results.
Respironics, as a publicly traded company, desired
that their strategy would yield long term growth and a
positive perception by investors. Specifically, the de-
sire of the management was to be seen by the market
as a “buy and hold” stock, one that yielded greater
long term value by holding onto the stock rather than
trading it. The new CSO engaged a third-party re-
search organization to help uncover the performance
criteria that would lead an investor to perceive
Respironics as a buy and hold company. The objective
was to be seen as a company that engendered trust
and provided the investor with the long term condi-
tions for success. Research yielded the following three
performance criteria that long term investors desired,
financial performance, (including annual revenue

growth in the mid-teens), operational excellence, in-
cluding cash generation and operational expense con-
trol, and value creators such as consistent and
predictable growth performance, sufficient breadth
and scope of company products and services, and
demonstrated management team capability and credi-
bility.
These factors became the scorecard of performance as
Respironics considered the development of an endur-
ing business strategy. It was during phase one that the
CSO engaged the internal OD and HR resourcesiii. The
initial project connection came in the form of a request
to assist with one specific value creator, demonstrated
management team capability, by developing a more
robust succession planning process. During the con-
tracting phase of this initial engagement, the larger
project was outlined, and a new integrated approach
for succession and leadership capability development
to support the initial request was delivered. However,
this initial entry point provided the opportunity to
share with the CSO new ideas, processes and tools to
assist with the larger project. He quickly took us into
the inner circle of development and execution. This
access and confidence allowed us to suggest concep-
tual frameworks (e.g. strategic intent; key competen-
cies); assist with data collection and analysis (e.g.
S.W.O.T.) and facilitate the communication and inte-
gration of the resulting strategy toward culture change
as described below.
Step Two – Assess the Current State
To understand our current state in each of the buy and
hold performance criteria, a careful analysis of the
strengths, weaknesses, opportunities and threats
(S.W.O.T.) was completed within each of the four op-

erating divisions. These conversations with business
leaders across the business units revealed environ-
mental and operational concerns. New competitors
had entered the market, governmental regulations had
placed greater pressure on profit marginsiv and con-
flicting priorities characterized the businesses. As a
business built primarily around engineering compe-
tencies, Respironics had developed complex design
and development processes. However, when asked,
there appeared to be no clear answer to the most fun-
damental strategic decision: “What should the scope of
our products and markets be?” The rapid growth and
market pressure had yielded a company splintered in
focus and product portfolio. Without a clear strategic
driving force, what we began to call strategic intent,
the individual businesses were heading in a dozen dif-
ferent directions based on their recent market/product
history and/or their perception of their current opera-
tional strength. It was clear that within the current
competitive environment and with so many environ-
mental issues in flux, neither of these perspectives
were sufficient to inform a strategy that would antici-
pate the rapidly changing conditions, challenge status
quo and deliver the expected financial performance of
a growth oriented company.
Step Three - Determine the Strategic Intent
A company’s driving force, or strategic intent, informs
and shapes how a business defines itself and where it
finds its unique strategic advantage. A clear strategic
intent gives managers a rallying point around which
to make decisions about the future of their organiza-
tion and to assess product options and market deci-
sions. Without it, they lack the understanding of the
central driving force of what the business is trying to
achieve and are forced to rely only on history for deci-

sions about the future. We found this concept best ar-
ticulated in a model presented by Tregoe and
Zimmerman (1980) describing a taxonomy of nine
strategic areas which shape the overall strategic inten-
tion of the business.
VOLUME 25 � NUMBER 4 � WINTER 2007P170 PDF Created
Although each of these strategic areas are critical to
the success of any organization, the authors suggest
that each company needs to consider which of these
strategic areas will serve as the core driving force for
that business. Once decided, strategic intent then
serves to inform all other decisions about the future of
the business. Companies that are unclear on which
strategic intent drives their business or try to operate
from multiple strategic intents will produce conflicting
priorities, wasted resources, indecision and frustration
in the workforce and then confusion in the market-
place. When priorities conflict and scarce resources
must be allocated, managers need to know how to
make the tough decision. They need a touch point
which shapes the future and explains the past. The
articulation of the driving force in the business is
VOLUME 25 � NUMBER 4 � WINTER 2007 P171
Strategic Area Definition Examples
1. Products Offered Focused on the current product mix, look
for
ways to improve or extend current product

capabilities and achieve higher
penetration of current markets
Ford motor Company
Bank of America
Metro-Goldwyn-Mayer, Inc.
2. Market Needs Provides a range of products to fill current or
emerging needs of identified markets; devel-
ops new products/services; searches for new
markets with characteristics similar current
Gille?e Company
Merrill Lynch & Co. Inc
3. Technology Offers only products/services that emanate
from or capitalize on its technical
capability; seeks new applications for its
technology
E.I. DuPont de Nemours
Honda
4. Production
Capability
Leverages production know-how, processes,
systems and equipment; two-types:
commodity – characterized by long runs and
economies of scale; job-shop – produces a
wide range of products which utilize its pro-
duction know-how;
US Steel Corporation
International Paper Co

5. Method of Sale Established primary method for convincing
customers to buy its products and determines
products, markets and geographic scope on
the basis of this method of sale
Avon Product, inc.
AMWAY
EBay
6. Method of
Distribution
Leverages strong distribution channels to
deliver products; determines product mix,
customers and geographic scope based on
existing channels
McDonald’s Corporation
COMCAST
7. Natural Resources Develops products through the use or
conservation of natural resources
Gulf Oil
U.S. Forest Service
8. Size/Growth Determines the products and markets service
based on the desire to become larger or
smaller; may push into unrelated markets if
potential for size/growth exists; often an in-
terim driving force
Li?on Industries (1950-60s)
General Electric
9. Return/Profit Desires for specific levels of return drive the

product and market decisions of this organi-
zations; will change market scope in order to
achieve its return/profit requirements
R.J. Reynolds Industries
Tyco International
Table 1. Taxonomy of Possible Strategic Intentions
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different from a mission and/or vision statement.
While a mission or vision statement may define the as-
piration or purpose of the company, the strategic in-
tent articulates how we are going to leverage the
company resources and strategic alternatives to ac-
complish this goal. A common mission considered
from the different strategic perspectives articulated in
this taxonomy would yield very different courses of
action. As each perspective leverages a different
strategic imperative, it sets different priorities, recom-
mends different investments and shapes different cul-
tures. Therefore, the articulation of a strategic intent
for a business informs all other strategic decisions to
follow.
There are numerous examples of organizations that
have leveraged each of these strategic intents as their
primary driving force toward success. Honda has suc-
cessfully leveraged their deep understanding of en-
gines (technology) and applied them to markets from
lawn mowers to portable generators to automobiles.
General Electric has built its substantial reputation on

its passion to grow and return a profit and to be first
or second in each market in which it chooses to com-
pete. Within the medical device industry examples of
great success with businesses that have focused re-
sources around one of the defined strategic intents can
also be found. While no single driving force guaran-
tees success, it does help to articulate the core assump-
tions and priorities of the business, informs leadership
for decision making and defines for the workforce the
source of their unique chosen competitive advantage.
Our SWOT analysis discovered that six of the nine
strategic intents described in this taxonomy were iden-
tified by business leaders as driving critical decisions
within their businesses. The assumptions and behav-
iors of some leaders suggested that greater penetration
of current products was the driving force for our busi-
ness, while for others leveraging our distribution
channels, advancing our technology, maximizing our
production capability or mergers and acquisitions (i.e.,
growth) were identified as the single most important
determinant for strategic direction and investment of
resources. When Respironics’ executive management
considered each potential strategic driver within the
context of the markets served, the company’s
history/origins, and the core beliefs of the business
they realized that many strategic intents were viable
for Respironics. However, it was determined that a
“Market Needs” strategic intent best described the
core decision making criteria and the type of culture
the executive management desired for this medical de-
vice company. This strategic intent leveraged the
company’s passion for improving the lives of patients,
for providing novel solutions to clinicians and for pro-
viding programs to enhance the business capabilities

of the home health care product distributors. It would
also challenge the business to understand and antici-
pate the needs of the markets and to design and de-
liver new solutions. This decision represented a
conscious shift in focus in a company that had built its
reputation on engineering success and innovation to a
business focused around markets and their needs.
Yes, the engineering efforts were intended to address
specific market needs, but over time the business had
encoded the engineering DNA so far into the organi-
zational fabric that product specifications, product fea-
ture choices, delivery dates and sometimes even the
“go to market” strategies were defined by the research
engineers - not those closest to the market. Over time
Respironics had focused on developing engineering as
a core competency of the business and this strategic in-
tent called for marketing to be the differentiating com-
petency for the business. This single decision of the
driving force (strategic intent) for the business would
require re-education and re-tooling across the entire
business.
Step Four - Articulating the Strategic Vision
Along with the consideration of the desired outcome
and the strategic intent, a business strategy must con-
sider a complex set of interacting factors, including:
the industry’s history and structure, the companies
(and competitors) capabilities and the markets in
which the firm chooses to compete . How you define
your market shapes your view of the world. It be-
comes the aperture through which you view every-
thing. Define it too narrowly and you miss market
opportunities; define it too broad and you dilute re-
sources and risk losing market penetration.
For Respironics, the OSA market had long been con-

sidered our primary market by both Wall Street and
our own leaders. This perspective may have come
from a ‘products offered’ mentality as 80% of our rev-
enues were generated through OSA related products.
A ‘market needs’ strategic intent would call us to care-
fully reconsider our assumptions about the markets
we serve. For example, our market research discov-
ered that 50% of people in the US alone describe them-
selves as a “problem sleeper”. Most of these
individuals did not have OSA and many would con-
sider a medical device as an alternative to drugs to as-
sist with sleep. So we began to talk about the needs of
the problem sleeper rather than the OSA patient – ex-
panding our potential market ten fold. The Allergy
and Asthma division reframed their historical declin-
ing market of nebulizers and flow meters into an
emerging market of using the respiratory system to
deliver drugs into the body. Rethinking the markets
we serve required us to redefine operational strategies,
R&D projects, and who we considered our competi-
tors.
The company vision statement needed to also reflect
this new focus.
To be the worldwide leader at anticipating needs
and providing valued solutions to the sleep and
respiratory markets.
Although the new vision was quite simple, each word

was carefully crafted to communicate something spe-
cial about the desired market position (worldwide
leader), the strategic intent (anticipate and provide
valued solutions) and the desired markets (sleep and
respiratory) for Respironics. This strategic shift re-
quired communication to the management, the em-
ployees, our suppliers, our customers and Wall Street.
In order to explain the new behaviors required of the
workforce, three key competencies were articulated
along with the vision to illustrate the new way to
thinking.
1. Market Foresightvi - Exploiting deep insights into
the trends in technology, demographics,
regulations, and lifestyles to re-write rules and
create new competitive spaces, sensing both
opportunities and threats
2. Learning Agility - Aggressively learning and
applying the new skills/knowledge required to be
successful within new, changing or uncertain
conditions
3. Teaming - Leveraging available resources and
capabilities (internal/external) to execute and
achieve defined goals
Through an integrated communication plan (e.g., visu-
als, meetings, on-boarding and performance manage-
ment alignment with strategic objectives and
language) we a?empted to touch each associate with a
clear and consistent message of the strategic direction
of the business and their role in achieving this vision –
spreading both the language and excitement of the
new strategy. To assist with the dissemination of the
message/behaviors we identified, trained and commis-

sioned influence leaders from across the business to
serve as agents for change within their own work en-
vironments.
Step Five – Walk the Talk – then Talk about the Walk
Executive management took immediate action to re-
organize/create strategic business units designed to
focus on exploiting existing and emerging markets .
Perhaps the most significant demonstration of the exe-
cution of this strategy was how executive management
chose to allocate resources and invest their money –
against the strategic intent. Aligning resources into
market segment based strategic business units, invest-
ing in emerging markets, funding market research and
product development, M&A, and strategic compe-
tency development, are just a few business decisions
resulting directly from the selection of a market needs
strategic intent – demonstrating their willingness to
walk the talk. These decisions, as well as personnel
decisions (senior staff replacements, leadership devel-
opment), were communicated to the employees and
the market at large within the context of how they
support the implementation of the strategic intent and
alignment (or lack there of ) with the business strategy
– a steady drum beat of walking the talk and talking
about their walk.
Perhaps the greatest challenge in implementing this
market needs strategic intent was in shaking loose the
grip of the historical culture, characterized by highly
engineered processes designed to maximize the design
and development of products rather than the develop-
ment of markets. While these design engineering
processes are critical for a market needs company as
well, conflict often arose between marketing leader-
ship and engineering leadership as to who had the

final call on product design, features and development
priorities. It took time to build the competencies and
develop the trust required for the group to accept the
new accountabilities of the product manager - ac-
countable to define the market need in such a way to
direct the work of the engineer’s energy and creativity.
While this implementation is a journey not a destina-
tion, significant progress has been made since its initi-
ation in 2002. Respironics’ revenue has grown from
$450M to $1.2B as we have expanded our product of-
ferings, developed our Research & Development
pipeline, maintained leadership in our core markets,
and acquired several businesses and/or technologies.
Ninety-six percent of our associates report they under-
stand where the company is headed and the strategic
Vision for the companyviii. The language of strategic
intent, market needs and the three key competencies
are now part of the company’s day-to-day business
lexicon as excitement is building about the opportuni-
ties ahead.
Conclusion
Beginning with the challenge to build a sustainable
strategy for long term growth, a five step strategic de-
velopment process was executed. Central to this strat-
egy was the definition of a ‘strategic intent’ for our
business. Our strategic intent informed and shaped
how our business defined itself and where it intends to
find our unique strategic advantage. Our strategic in-
tent has given managers a rallying point around which

to make decisions about the future of their organiza-
tion and to assess product options and market deci-
sions. We believe this strategy can differentiate us
from competitors and prepare us to anticipate and
adapt to the challenges that lie ahead.
References
Tregoe, B. B., & Zimmerman, J. W. (1980). Top
Management Strategy: What it Is and How to
Make it Work. New York: Simon & Schuster.
Author’s Reflection
I have served as the Director, Organizational Develop-
ment for Respironics since 2002. In this role I report
directly to the Chief Human Resource Officer (CHRO),
who is a member of the executive staff. I have over-
sight accountability for all Talent Management activi-
ties and processes for the enterprise. These include
organizational development; talent acquisition, per-
formance management, executive succession, manage-
ment development, engagement and retention, and
strategic competency development.
The most difficult challenge faced in this project was
how to evolve a historically successful engineering-
based organizational culture to a culture focused more
on the unique and emerging needs of the market and
customer, rather than the features of products deliv-
ered. The existing culture was strong and ingrained in
the a?itudes, assumptions, and processes of the day-
to-day decision making at Respironics. Introducing
the concept of strategic intent facilitated the dialog of
new assumptions, processes, and behaviors in light of
the market needs as strategic intent. This discussion,
along with the introduction of the key competencies,

market foresight, learning agility, and teaming, which
were selected specifically to drive the defined strategic
intent, provided a language to describe the new expec-
tations and required behaviors. The unique advantage
I had as an internal consultant to this project was a
deep understanding and respect for both the history
and success of the current culture. This allowed me to
challenge the status quo from a less threatening per-
spective, as a member of the family, so to speak. Addi-
tionally, the strong sponsorship and support of the
chief strategic officer, CHRO, and the board of direc-
tors generated the willingness from other executives
and leaders, even those most ingrained in the old cul-
ture, to consider the required cultural changes.
When tackling a project like this, I have come to be-
lieve that defining a new language is critical to ge?ing
people to think differently about old behaviors. The
unique advantage of the internal consultant is that
they can leverage organizational history and stories to
illustrate and expand the new language to break down
some of the resistance to the desired change.
Author’s Bio
James W. Ice joined Respironics as the Director of Or-
ganizational Development in 2002. In this role he has
oversight accountability for the OD, executive devel-
opment, talent management, and talent acquisition ini-
tiatives across the enterprise. Over his 20 year career,
Jim has held several internal OD and HR roles for
Alcoa, Allegheny Energy, and HealthSouth Healthcare
Systems. In addition, Jim served six years as the Vice
President of Professional Services for Success Factors,
Inc., a human resources consulting and software com-
pany, consulting to over 200 leading companies on

business strategy and alignment of human capital. He
holds a BA from West Virginia University in Psychol-
ogy, a MS from Purdue University in Organizational
Communication and is completing his EdD at the Uni-
versity of Pi?sburgh. He is a frequent speaker at pro-
fessional and academic venues. He can be contacted
at: [email protected]
Endnotes
i These disorders include treatments for obstructive sleep apnea
(OSA); asthma; chronic obstructive pulmonary disease and
restric-
tive lung disorders.
ii This project was assigned as a development opportunity and
to
assess the candidate’s ability to think and lead strategically – a
con-
dition for success as the primary successor to the current CEO.
iii At the initiation of this project the internal support resources
were
both new to the business – CHRO, less than 9 months; Director
of
OD, less than 3 month
iv Governmental reimbursement limits set by Medicare directly
im-
pact the price of each unit sold.
v Schoemaker, P. J. (1992). Corporate Strategy. MIT/Sloan
Manage-
ment Review, Vol 34, No 1, pp. 67-81
vi Adapted from Hamel, G. and Prahalad, C. K. (1994 ).
Competing

for the Future. Boston Mass: Harvard Business School Press.
vii This process continues today as the markets continue to
evolve
and dictate the organizational structures required to support
their
development.
viii As measured by the annual Employee Engagement Survey
Porter's Five-Forces Model
Porter's five-forces model is a strategy framework that provides
corporations with clear analysis of their competitive strategies.
The model was developed and advanced by Michael Porter, a
renowned marketing strategist. Porter's five-forces model looks
at the strength of five distinct competitive forces, which when
taken together, determine long-term profitability
and competition. Porter's work has had a greater influence
on business strategy.
The five-forces model was developed in Porter's 1980
book, Competitive Strategy: Techniques for Analyzing
Industries and Competitors. To Porter, the classic means of
developing a strategy—a formula for competition, goals, and
policies to achieve those goals—was antiquated and in need of
revision. Porter was searching for a solution between the two
schools of prevailing thought. One was centered on the Harvard
Business School, and it urged firms to adjust to a unique set of
changing circumstances. The other strategy, championed by the
Boston Consulting Group, was based on the experience curve,
whereby the more a company knows about the existing market,
the more its strategy can be directed to increase its share of the
market. Porter applied microeconomic principles to business

strategy and analyzed the strategic requirements of industrial
sectors, not just specific companies.
THE FIVE FORCES
The five forces are competitive factors, which determine
industry competition and include: suppliers, rivalry within an
industry, substitute products, customers or buyers, and new
entrants (see Figure 1).
Although the strength of each force can vary from industry to
industry, the forces, when considered together, determine long-
term profitability within the specific industrial sector. The
strength of each force is a separate function of the industry
structure, which Porter defines as “the underlying economic and
technical characteristics of an industry.” Collectively, the five
forces affect prices, necessary investment for
competitiveness, market share, potential profits, profit margins,
and industry volume. The key to the success of an industry, and
thus the key to the model, is analyzing the changing dynamics
and continuous flux between and within the five forces. Porter's
model depends on the concept of power within the relationships
of the five forces.
Page 715 | Top of Article
Figure 1
Industry Competitors. Rivalries naturally develop between
companies competing in the same market. Competitors use
means such as advertising, introducing new products, more
attractive customer service and warranties, and price
competition to enhance their standing and market share in a
specific industry. To Porter, the intensity of this rivalry is the
result of factors like equally balanced companies, slow growth
within an industry, high fixed costs, lack of product
differentiation, overcapacity and price-cutting, diverse
competitors, high-stakes investment, and the high risk of
industry exit. There are also market entry barriers.
Pressure from Substitute Products. Substitute products are the
natural result of industry competition, but they place a limit on

profitability within the industry. A substitute product involves
the search for a product that can do the same function as the
product the industry already produces. Porter uses the example
of security brokers, who increasingly face substitutes in the
form of real estate, money-market funds, and insurance.
Substitute products take on added importance as their
availability increases.
Bargaining Power of Suppliers. Suppliers have a great deal of
influence over an industry as they affect price increases and
product quality. A supplier group exerts even more power over
an industry if it is dominated by a few companies; there are no
substitute products; the industry is not an important consumer
for the suppliers; their product is essential to the industry; and
forward integration potential of the supplier group exists. Labor
supply can also influence the position of the suppliers. These
factors are generally out of the control of the industry or
company but strategy can alter the power of suppliers.
Bargaining Power of Buyers. The buyer's power is significant in
that buyers can force prices down, demand higher quality
products or services, and, in essence, play competitors against
one another, all resulting in potential loss of industry profits.
Buyers exercise more power when they are large-volume buyers,
the product is a significant aspect of the buyer's costs or
purchases, the products are standard within an industry, there
are few changing or switching costs, the buyers earn low
profits, potential for backward integration of the buyer group
exists, the product is not essential to the buyer's product, and
the buyer has full disclosure about supply, demand, prices, and
costs. The bargaining position of buyers changes with time and
a company's (and industry's) competitive strategy.
Potential Entrants. Threats of new entrants into an industry
depend largely on barriers to entry. Porter identifies six major
barriers to entry:
· Economies of scale, or decline in unit costs of the product,
which force the entrant to enter on a largePage 716 | Top of
Articlescale and risk a strong reaction from firms already in the

industry, or accepting a disadvantage of costs if entering on a
small scale.
· Product differentiation, or brand identification and customer
loyalty.
· Capital requirements for entry; the investment of large capital,
after all, presents a significant risk.
· Switching costs, or the cost the buyer has to absorb to switch
from one supplier to another.
· Access to distribution channels. New entrants have to
establish their distribution in a market with established
distribution channels to secure a space for their product.
· Cost disadvantages independent of scale, whereby established
companies already have product technology, access to raw
materials, favorable sites, advantages in the form of government
subsidies, and experience.
BARRIERS TO ENTRY STRATEGY
The six factors identified by Porter can be narrowed down into
two major categories of barriers to entry; market barriers to
entry and mobility barriers to entry. Market barriers to entry are
the structural characteristics of a market, which favor
established firms to the disadvantage of new entrants in the
market in such a way that established firms enjoy the flexibility
of raising prices over costs without attracting new entrants.
Mobility barriers shield a firm operating in one segment of the
market from entry by other firms operating in different
segments of the same market.
Armstrong and Kotler reckon that barriers to entry as a strategy
does not occur naturally and has to be initiated by organizations
through anticipatory approach. The major strategies of barriers
to entry commonly employed by established firms include
adoption of sunk costs, squeezing of new entrants, and raising
the costs of competitors.
Sunk costs are one of the most effective barriers to entry
strategies that a firm can adopt. This is done by locking itself
into a market in such a way that new entrants find it difficult to
initiate and enforce counter strategies that would kick the

incumbent firm out of business. A firm sinks costs through
commitment of substantial capital towards purchasing,
expanding, and sustaining its investment resources such as
plant, machinery, equipments, and acquisition of advanced
technologies which enable the firm to draw the advantages of
low pricing through economies of scale. Dell, a leading
manufacturer of personal computers, is one of the best examples
of companies that have successfully applied this strategy. Dell
has been able to retain the lion's share of the personal computer
market for many years despite the entry of Macintosh
Computers and even the subsequent merger of Hewlett-Packard
and Compaq Computers because of the low pricing advantage
that it draws from the economies of scale of its vast resources.
Squeezing of new entrants and raising the costs of a competitor
are closely related strategies, which focus on creation of a
difficult market environment; this denies competitors the
likelihood of achieving positive returns on their investments.
These strategies of barrier to entry involve introduction of
measures such as increased expenditures on advertising, heavy
research and development, minimization of access to channels
of distribution, patenting of innovations, lowering of prices,
optimization of government subsidies, and development of
cheaper alternative product ranges in the same market.
New entrants can also expect a barrier in the form of
government policy through federal and state regulations and
licensing. New firms can expect retaliation from existing
companies and also face changing barriers related to
technology, strategic planning within the industry, and
manpower and expertise problems. The entry deterring price or
the existence of a prevailing price structure presents an
additional challenge to a firm entering an established industry.
Whereas established firms may find it easy to manipulate the
different strategies of barriers to entry according to prevailing
market conditions, new entrants always find it difficult to break
these barriers and may even run the risks of incurring heavy
losses during the efforts to establish favorable market share for

their products. It is equally important for management of
established firms to adopt a balanced approach when
implementing market barrier techniques against competitors and
imitators by ensuring that additional costs incurred are
appropriately recovered through increased sales volumes.
In summary, Porter's five-forces model concentrates on five
structural industry features that comprise the competitive
environment, and hence profitability, of an industry. Applying
the model means, to be profitable, the firm has to find and
establish itself in an industry so that the company can react to
the forces of competition in a favorable manner. For
Porter, Competitive Strategy is not a book for academics but a
blueprint for practitioners—a tool for managers to analyze
competition in an industry in order to anticipate and prepare for
changes in the industry, new competitors and market shifts, and
to enhance their firm's overall industry standing.
Throughout the relevant sections of Competitive Strategy,
Porter uses numerous industry examples to illustrate his theory.
Although immediate praise for the book and the five-forces
model was exhaustive, critiques of Porter have appeared in
business literature. Porter's model does not, for example,
consider nonmarket changes, such as events in
Page 717 | Top of Article
the political arena that impact an industry. Furthermore, Porter's
model has come under fire for what critics see as his under-
evaluation of government regulation and antitrust violations.
Overall, criticisms of the model find their nexus in the lack of
consideration by Porter of rapidly changing industry dynamics.
In virtually all instances, critics also present alternatives to
Porter's model.
Yet, in a Fortune interview in early 1999, Porter responded to
the challenges, saying he welcomed the “fertile intellectual
debate” that stemmed from his work. He admitted he had
ignored writing about strategy in recent years but emphasized
his desire to reenter the fray discussing his work and addressing
questions about the model, its application, and the confusion

about what really constitutes strategy. Porter's publications on
competitive strategies span across all spheres of business as
demonstrated by his 2006 book titled Redefining Health Care:
Creating Value-Based Competition on Results.
Sustaining Superior Performance
A firm’s ultimate goal is the lasting ability to outperform the
competition. It impels the company to stay ahead of present and
future competition and ensure market leadership.
A competitive advantage is an advantage gained over
competitors by offering customers greater value, either through
lower prices or by providing additional benefits and service that
justify similar, or possibly higher, prices.
Strategy is about positioning your organization for competitive
advantage. A strategy aims to offer customers greater value and
service than provided by competitors and relates to choices on
what services to offer and, therefore, how to allocate resources.
Managerial tools, such as quality management systems,
operational efficiencies, financial control, human resource
development (HRD) systems, sales, and marketing, help us
perform better than competitors. They are necessary but are
fairly easily imitated.
Whatever competitive advantage you may possess, whether one
of cost leadership, differentiated products and services,
specialized service in a niche market, or a combination of these,
ongoing change in the environment and countermoves by your
competitors will keep eroding your position. A company’s
dominant position decays over time; it cannot last forever.
The company has to craft and implement strategies that sustain
its competitive advantage. Creating a sustainable and superior
performance is the most important area of focus for an
organization. Your strategy, therefore, must serve a dual
purpose:
· slow down the process of erosion by protecting current
advantage against the actions of competitors

· invest in new skills and knowledge that will form a platform
for the next position of competitive advantage
The essence of strategy—both in terms of what to do and what
not to do—is to create barriers to imitations, an approach
depicted in the figure below.
Strategy to Sustain Superior Performance
A sustainable competitive advantage may seem difficult to
achieve. However, it has certain essential ingredients, as shown
in the figure below.
Elements of Sustaining Superior Performance
People and their capability represent the source of most
competitive advantage. Furthermore, a culture of innovation and
accepting change, superior process that are difficult to imitate,
knowledge management systems, technologies to support
processes, capital to renovate and invest in new opportunities,
and production processes that are environmentally sustainable
comprise the foundational elements to achieving a lasting
ability to outperform competitors.
© 2019 Universit
Mastering Strategy: Art and Science
Strategic Management: A Core Concern for Apple
March 2, 2011, was a huge day for Apple. The firm released its
much-anticipated iPad2, a thinner and faster version of market-
leading Apple's iPad tablet device. Apple also announced that a
leading publisher, Random House, had made all 1,700 of its
books available through Apple's iBookstore. Apple had enjoyed
tremendous success for quite some time. Approximately 15
million iPads were sold in 2010, and the price of Apple's stock
had more than tripled from early 2009 to early 2011.
But future success was far from guaranteed. The firm's
visionary founder Steve Jobs was battling serious health
problems. Apple's performance had suffered when an earlier

health crisis had forced Jobs to step away from the company,
raising serious questions. Would Jobs have to step away again?
If so, how might Apple maintain its excellent performance
without its leader?
Meanwhile, the iPad2 faced daunting competition. Samsung,
LG, Research in Motion, Dell, and other manufacturers were
trying to create tablets that were cheaper, faster, and more
versatile than the iPad2. These firms were eager to steal market
share by selling their tablets to current and potential Apple
customers. Could Apple maintain leadership of the tablet
market, or would one or more of its rivals dominate the market
in the years ahead? Even worse, might a company create a new
type of device that would make Apple's tablets obsolete?
Defining Strategic Management and Strategy
What Is Strategic Management?
Issues like those currently faced by Apple are the focus of
strategic management study because they help answer the key
question examined by the business area—why do some firms
outperform other firms? More specifically, strategic
management examines how actions and events involving top
executives (such as Steve Jobs), firms (Apple), and industries
(the tablet market) influence a firm's success or failure. Formal
tools exist for understanding these relationships, and many of
these tools are explained and applied in this book. But formal
tools are not enough. Creativity is just as important to strategic
management. Mastering strategy is therefore part art and part
science.
This introductory chapter is intended to enable you to
understand what strategic management is and why it is
important. Because strategy is a complex concept, we begin by
explaining five different ways to think about what strategy
involves. Next, we journey across many centuries to examine
the evolution of strategy from ancient times until today. We end
this chapter by presenting a conceptual model that maps out one
way that executives can work toward mastering strategy. The
model also provides an overall portrait of this book's contents

by organizing the remaining nine chapters into a coherent
whole.
Defining Strategy: The Five Ps
Defining strategy is not simple. Strategy is a complex concept
that involves many different processes and activities within an
organization. To capture this complexity, Professor Henry
Mintzberg of McGill University in Montreal, Canada,
articulated what he labeled the five Ps of strategy. According to
Mintzberg (1987), understanding how strategy can be viewed as
a plan, as a ploy, as a position, as a pattern, and as a perspective
is important. Each of these five ways of thinking about strategy
is necessary for understanding what strategy is, but none of
them alone is sufficient to master the concept.
Strategy as a Plan
Strategic plans are the essence of strategy, according to one
classic view of strategy. A strategic plan is a carefully crafted
set of steps that a firm intends to follow to be successful.
Virtually every organization creates a strategic plan to guide its
future. In 1996, Apple's performance was not strong, and
Gilbert F. Amelio was appointed as chief executive officer in
the hope of reversing the company's fortunes. In a speech
focused on strategy, Amelio described a plan that centered on
leveraging the Internet (which at the time was in its infancy)
and developing multimedia products and services. Apple's
subsequent success selling over the Internet via iTunes and with
the iPad can be traced back to the plan articulated in 1996
(Markoff, 1996).
A business model should be a central element of a firm's
strategic plan. Simply stated, a business model describes the
process through which a firm hopes to earn profits. It probably
won't surprise you to learn that developing a viable business
model requires that a firm sell goods or services for more than
it costs the firm to create and distribute those goods. A more
subtle but equally important aspect of a business model is
providing customers with a good or service more cheaply than
they can create it themselves.

Consider, for example, large chains of pizza restaurants, such as
Papa John's and Domino's.
Because these firms buy their ingredients in massive quantities,
they pay far less for these items than any family could (an
advantage called economies of scale). Meanwhile, Papa John's
and Domino's have developed specialized kitchen equipment
that allows them to produce better-tasting pizza than can be
created using the basic ovens that most families rely on for
cooking. Pizza restaurants thus can make better-tasting pizzas
for a far lower cost than a family can. This business model
provides healthy margins and has enabled Papa John's and
Domino's become massive firms.
Strategic plans are important to individuals too. Indeed, a well-
known proverb states that "he who fails to plan, plans to fail."
In other words, being successful requires a person to lay out a
path for the future and then follow that path. If you are reading
this, earning a college degree is probably a key step in your
strategic plan for your career. Don't be concerned if your plan is
not fully developed, however. Life is full of unexpected twists
and turns, so maintaining flexibility is wise for individuals
planning their career strategies as well as for firms.
For firms, these unexpected twists and turns place limits on the
value of strategic planning. Former heavyweight boxing
champion Mike Tyson captured the limitations of strategic plans
when he noted, "Everyone has a plan until I punch them in the
face." From that point forward, strategy is less about a plan and
more about adjusting to a shifting situation. For firms, changes
in the behavior of competitors, customers, suppliers, regulators,
and other external groups can all be sources of a metaphorical
punch in the face. As events unfold around a firm, its strategic
plan may reflect a competitive reality that no longer exists.
Because the landscape of business changes rapidly, other ways
of thinking about strategy are needed.
Strategy as a Ploy
A second way to view strategy is in terms of ploys. A strategic
ploy is a specific move designed to outwit or trick competitors.

Ploys often involve using creativity to enhance success. One
such case involves the mighty Mississippi River, which is a
main channel for shipping cargo to the central portion of the
United States. Ships traveling the river enter it near New
Orleans, Louisiana. The next major port upriver is Louisiana's
capital, Baton Rouge. A variety of other important ports exist in
states farther upriver.
Many decades ago, the governor of Louisiana was a clever and
controversial man named Huey Long. Legend has it that Long
ordered that a bridge being constructed over the Mississippi
River in Baton Rouge be built intentionally low to the ground.
This ploy created a captive market for cargo because very large
barges simply could not fit under the bridge. Large barges using
the Mississippi River thus needed to unload their cargo in either
New Orleans or Baton Rouge. Either way, Louisiana would
benefit. Of course, owners of ports located farther up the river
were not happy.
Ploys can be especially beneficial in the face of much stronger
opponents. Military history offers quite a few illustrative
examples. Before the American Revolution, land battles were
usually fought by two opposing armies, each of which wore
brightly colored clothing, marching toward each other across
open fields. George Washington and his officers knew that the
United States could not possibly defeat better-trained and
better-equipped British forces in a traditional battle. To
overcome its weaknesses, the American military relied on
ambushes, hit-and-run attacks, and other guerilla moves. It even
broke an unwritten rule of war by targeting British officers
during skirmishes. This was an effort to reduce the opponent's
effectiveness by removing its leadership.
Centuries earlier, the Carthaginian general Hannibal concocted
perhaps the most famous ploy ever. Carthage was at war with
Rome, a scary circumstance for most Carthaginians, given their
far weaker fighting force. The Alps had never been crossed by
an army. In fact, the Alps were considered such a treacherous
mountain range that the Romans did not bother monitoring the

part of their territory that bordered the Alps. No horse was up to
the challenge, but Hannibal cleverly put his soldiers on
elephants, and his army was able to make the mountain
crossing. The Romans were caught completely unprepared, and
most of them were frightened by the sight of charging
elephants. By using the element of surprise, Hannibal was able
to lead his army to victory over a much more powerful enemy.
Ploys continue to be important today. In 2011, a pizzeria owner
in Pennsylvania was accused of making a rather unique attempt
to outmaneuver two rival pizza shops. According to police, the
man tried to sabotage his competitors by placing mice in their
pizzerias. If the ploy had not been discovered, the two shops
could have suffered bad publicity or even been shut down by
authorities because of health concerns. Although most strategic
ploys are legal, this one was not, and the perpetrator was
arrested (Reuters, 2011).
Strategy as a Pattern
Strategy as pattern is a third way to view strategy. This view
focuses on the extent to which a firm's actions over time are
consistent. A lack of a strategic pattern helps explain why
Kmart deteriorated into bankruptcy in 2002. The company was
started in the late nineteenth century as a discount department
store. By the middle of the twentieth century, consistently
working to be good at discount retailing had transformed Kmart
into a large and prominent chain.
By the 1980s, however, Kmart began straying from its
established strategic pattern. Executives shifted the firm's focus
away from discount retailing and toward diversification. Kmart
acquired large stakes in chains involved in sporting goods
(Sports Authority), building supplies (Builders Square), office
supplies (OfficeMax), and books (Borders). In the 1990s, a new
team of executives shifted Kmart's strategy again. Brands other
than Kmart were sold off, and Kmart's strategy was adjusted to
emphasize information technology and supply chain
management. The next team of executives decided that Kmart's
strategy would be to compete directly with its much larger rival,

Walmart. The resulting price war left Kmart crippled. Indeed,
this last shift in strategy was the fatal mistake that drove Kmart
into bankruptcy. Today, Kmart is part of Sears Holding
Company, and its prospects remain uncertain.
In contrast, Apple is very consistent in its strategic pattern. It
always responds to competitive challenges by innovating. Some
of these innovations are complete busts. Perhaps the best known
was the Newton, a tablet-like device that may have been ahead
of its time. Another was the Pippin, a video game system
introduced in 1996 to near-universal derision. Apple TV, a 2007
offering that intended to link televisions with the Internet, also
failed to attract customers. Such failures do not discourage
Apple, however, and enough of its innovations are successful
that Apple's overall performance is excellent. However, there
are risks to following a pattern too closely. A consistent pattern
can make a company predictable, a possibility that Apple must
guard against in the years ahead.
Strategy as a Position
Viewing strategy as a plan, a ploy, and a pattern involve only
the actions of a single firm. In contrast, the next P—strategy as
position—considers a firm and its competitors. Specifically,
strategy as position refers to a firm's place in the industry
relative to its competitors. McDonald's, for example, has long
been and remains the clear leader among fast-food chains. This
position offers both good and bad aspects for McDonald's. One
advantage of leading an industry is that many customers are
familiar with and loyal to leaders. Being the market leader,
however, also makes McDonald's a target for rivals, such as
Burger King and Wendy's. These firms create their strategies
with McDonald's as a primary concern. Old Navy offers another
example of strategy as position. Old Navy has been positioned
to sell fashionable clothes at competitive prices.
Old Navy is owned by the same corporation, Gap Inc., as the
midlevel brand the Gap and upscale brand Banana Republic.
Each of these three brands is positioned at a different pricing
level. The firm hopes that as Old Navy's customers grow older

and more affluent, they will shop at the Gap and then eventually
at Banana Republic. A similar positioning of different brands is
pursued by General Motors through its Chevrolet (entry level),
Buick (midlevel), and Cadillac (upscale) divisions.
Firms can carve out a position by performing certain activities
in a different manner than their rivals. For example, Southwest
Airlines is able to position itself as a lower-cost and more
efficient provider by not offering meals that are common among
other airlines. In addition, Southwest does not assign specific
seats. This allows for the faster boarding of passengers.
Positioning a firm in this manner can only be accomplished
when managers make trade-offs that cut off certain possibilities
(such as offering meals and assigned seats) to place their firms
in a unique strategic space. When firms position themselves
through unique goods and services that customers value,
business often thrives. But when firms try to please everyone,
they often find themselves without the competitive positioning
needed for long-term success. Thus deciding what a firm is not
going to do is just as important to strategy as deciding what it is
going to do (Porter, 1996).
To gain competitive advantage and greater success, firms
sometimes change positions. But this can be a risky move.
Winn-Dixie became a successful grocer by targeting moderate-
income customers. When the firm abandoned this established
position to compete for wealthier customers and higher margins,
the results were disastrous. The firm was forced into bankruptcy
and closed many stores. Winn-Dixie eventually exited
bankruptcy, but like Kmart, its future prospects are unclear. In
contrast to firms that change position, such as Winn-Dixie,
Apple has long maintained a position as a leading innovator in
various industries. This positioning has served Apple well.
Strategy as a Perspective
The fifth and final P shifts the focus to inside the minds of the
executives running a firm. Strategy as perspective refers to how
executives interpret the competitive landscape around them.
Because each person is unique, two different executives could

look at the same event—such as a new competitor emerging—
and attach different meanings to it. One might just see a new
threat to his or her firm's sales; the other might view the
newcomer as a potential ally.
An old cliché urges listeners to make lemons into lemonade. A
good example of applying this idea through strategy as
perspective is provided by local government leaders in Sioux
City, Iowa. Rather than petition the federal government to
change their airport's unusual call sign—SUX—local leaders
decided to leverage the call sign to attract the attention of
businesses and tourists to build their city's economic base. An
array of clothing and other goods sporting the SUX name is
available. Some strategists, like these local leaders, are willing
to take a seemingly sour situation and see the potential
sweetness, while other executives remain fixated on the
sourness.
Executives who adopt unique and positive perspectives can lead
firms to find and exploit opportunities that others simply miss.
In the mid-1990s, the Internet was mainly a communication tool
for academics and government agencies. Jeff Bezos looked
beyond these functions and viewed the Internet as a potential
sales channel. After examining a number of different markets
that he might enter using the Internet, Bezos saw strong profit
potential in the bookselling business, and he began selling
books online. Today, the company he created—Amazon—has
expanded far beyond its original focus on books to become a
dominant retailer in countless markets. The late Steve Jobs at
Apple appeared to take a similar perspective. He saw
opportunities where others could not, and his firm has reaped
significant benefits as a result.
Key Points
· Strategic management focuses on firms and the different
strategies that they use to become and remain successful.
Multiple views of strategy exist, and the five Ps described by
Henry Mintzberg enhance understanding of the various ways in
which firms conceptualize strategy.

Intended, Emergent, and Realized Strategies
A few years ago, a consultant posed a question to thousands of
executives: Is your industry facing overcapacity and fierce price
competition? All but one said, yes. The only no came from the
manager of a unique operation—the Panama Canal! This
manager was fortunate to be in charge of a venture whose
services are desperately needed by shipping companies and that
offers the only simple route linking the Atlantic and Pacific
Oceans. The canal's success could be threatened if transoceanic
shipping was to cease or if a new canal were built. Both of these
possibilities are extremely remote, however, so the Panama
Canal appears to be guaranteed to have many customers for as
long as anyone can see into the future.
When an organization's environment is stable and predictable,
strategic planning can provide enough of a strategy for the
organization to gain and maintain success. The executives
leading the organization can simply create a plan and execute it,
and they can be confident that their plan will not be undermined
by changes over time. But as the consultant's experience shows,
only a few executives—such as the manager of the Panama
Canal—enjoy a stable and predictable situation. Because change
affects the strategies of almost all organizations, understanding
the concepts of intended, emergent, and realized strategies is
important. Also relevant are deliberate and nonrealized
strategies (Mintzberg & Waters, 1985).
Intended and Emergent Strategies
An intended strategy is the strategy that an organization hopes
to execute. Intended strategies are usually described in detail
within an organization's strategic plan. When a strategic plan is
created for a new venture, it is called a business plan. As an
undergraduate student at Yale in 1965, Frederick Smith had to
complete a business plan for a proposed company as a class
project. His plan described a delivery system that would gain
efficiency by routing packages through a central hub and then
pass them to their destinations. A few years later, Smith started
Federal Express (FedEx), a company whose strategy closely

followed the plan laid out in his class project. Today, Frederick
Smith's personal wealth has surpassed $2 billion, and FedEx
ranks eighth among the world's most admired companies
according to Fortune magazine. Certainly, Smith's intended
strategy has worked out far better than even he could have
dreamed (Donahoe, 2011; Fortune, 2011).
Emergent strategy has also played a role at Federal Express. An
emergent strategy is an unplanned strategy that arises in
response to unexpected opportunities and challenges.
Sometimes emergent strategies result in disasters. In the mid-
1980s, FedEx deviated from its intended strategy's focus on
package delivery to capitalize on an emerging technology,
facsimile (fax) machines. The firm developed a service called
ZapMail that involved documents being sent electronically via
fax machines between FedEx offices, and then being delivered
to customers' offices. FedEx executives hoped that ZapMail
would be a success because it reduced the delivery time of a
document from overnight to just a couple of hours.
Unfortunately, however, the ZapMail system had many technical
problems that frustrated customers. Even worse, FedEx failed to
anticipate that many businesses would simply purchase their
own fax machines. ZapMail was shut down before long, and
FedEx lost hundreds of millions of dollars following its failed
emergent strategy. In retrospect, FedEx had made a costly
mistake by venturing outside of the domain that was central to
its intended strategy: package delivery (FedEx Corporation
Company History, n.d.).
Emergent strategies can also lead to tremendous success.
Southern Bloomer Manufacturing Company was founded to
make underwear for use in prisons and mental hospitals. Many
managers of such institutions believe that the underwear made
for retail markets by companies such as Calvin Klein and Hanes
is simply not suitable for the people under their care. Instead,
underwear issued to prisoners needs to be sturdy and durable to
withstand the rigors of prison activities and laundering. To meet
these needs, Southern Bloomers began selling underwear made

of heavy cotton fabric.
An unexpected opportunity led Southern Bloomer to go beyond
its intended strategy of serving institutional needs for durable
underwear. Just a few years after opening, Southern Bloomer's
performance was excellent. It was servicing the needs of about
125 facilities, but unfortunately, this was creating a vast amount
of scrap fabric. An attempt to use the scrap as stuffing for
pillows had failed, so the scrap was being sent to landfills. This
was not only wasteful but also costly.
One day, cofounder Don Sonner visited a gun shop with his son.
Sonner had no interest in guns, but he quickly spotted a
potential use for his scrap fabric during this visit. The patches
that the gun shop sold to clean the inside of gun barrels were of
poor quality. According to Sonner, when he "saw one of those
flimsy woven patches they sold that unraveled when you
touched them, I said, 'Man, that's what I can do'" with the scrap
fabric (Wells, 2002). Unlike other gun-cleaning patches, the
patches that Southern Bloomer sold did not give off threads or
lint, two byproducts that hurt guns' accuracy and reliability. The
patches quickly became popular with the military, police
departments, and individual gun enthusiasts. Before long,
Southern Bloomer was selling thousands of pounds of patches
per month. A casual trip to a gun store unexpectedly gave rise
to a lucrative emergent strategy.
Realized Strategy
A realized strategy is the strategy that an organization actually
follows. Realized strategies are a product of a firm's intended
strategy (i.e., what the firm planned to do), the firm's deliberate
strategy (i.e., the parts of the intended strategy that the firm
continues to pursue over time), and its emergent strategy (i.e.,
what the firm did in reaction to unexpected opportunities and
challenges). In the case of FedEx, the intended strategy devised
by its founder many years ago—fast package delivery via a
centralized hub—remains a primary driver of the firm's realized
strategy. For Southern Bloomers Manufacturing Company,
realized strategy has been shaped greatly by both its intended

and emergent strategies, which center on underwear and gun-
cleaning patches.
In other cases, a firm's original intended strategies are long
forgotten. A nonrealized strategy refers to the abandoned parts
of the intended strategy. When aspiring author David
McConnell was struggling to sell his books, he decided to offer
complimentary perfume as a sales gimmick. McConnell's books
never did escape the stench of failure, but his perfumes soon
took on the sweet smell of success. The California Perfume
Company was formed to market the perfumes, and the firm
evolved into the personal care products juggernaut known today
as Avon. For McConnell, his dream to be a successful writer
was a nonrealized strategy, but through Avon, a successful
realized strategy was driven almost entirely by opportunistically
capitalizing on change through emergent strategy.
Strategy at the Movies
Did Harvard University student Mark Zuckerberg set out to
build a billion-dollar company with more than six hundred
million active users? As shown in 2010's The Social Network,
Zuckerberg's original concept in 2003 had a dark nature. After
being dumped by his girlfriend, a bitter Zuckerberg created a
website called FaceMash where the attractiveness of young
women could be voted on. This evolved first into an online
social network called Thefacebook that was for Harvard
students only. When the network became surprisingly popular, it
then morphed into Facebook, a website open to everyone.
Facebook is so pervasive today that it has changed the way we
speak, such as using the word friend as a verb. Ironically,
Facebook's emphasis on connecting with existing and new
friends is about as different as it could be from Zuckerberg's
original concept. Certainly, Zuckerberg's emergent and realized
strategies turned out to be far nobler than the intended strategy
that began his adventure in entrepreneurship.
Key Points
· Most organizations create intended strategies that they hope to
follow to be successful. Over time, however, changes in an

organization's situation give rise to new opportunities and
challenges. Organizations respond to these changes using
emergent strategies. Realized strategies are a product of both
intended and realized strategies.
The History of Strategic Management
Those who cannot remember the past are condemned to repeat
it.
George Santayana, The Life of Reason
Santayana's quote has strong implications for strategic
management. The history of strategic management can be traced
back several thousand years. Great wisdom about strategy can
be acquired by understanding the past, but ignoring the lessons
of history can lead to costly strategic mistakes that could have
been avoided. Certainly, the present offers very important
lessons, and businesses can gain knowledge about what
strategies do and do not work by studying the current actions of
other businesses. But this section discusses two less obvious
sources of wisdom: (1) strategy in ancient times and (2) military
strategy. This section also briefly traces the development of
strategic management as a field of study.
Strategy in Ancient Times
Perhaps the earliest-known discussion of strategy is offered in
the Old Testament of the Bible (Bracker, 1980). Approximately
3,500 years ago, Moses faced quite a challenge after leading his
fellow Hebrews out of enslavement in Egypt. Moses was
overwhelmed as the lone strategist at the helm of a nation that
may have exceeded one million people. Based on advice from
his father-in-law, Moses began delegating authority to other
leaders, each of whom oversaw a group of people. This
hierarchical delegation of authority created a command
structure that freed Moses to concentrate on the biggest
decisions and helped him implement his plan. Similarly, the
demands of strategic management today are simply too much for
a chief executive officer to handle alone. Many important tasks
are thus entrusted to vice presidents and other executives.
In ancient China, strategist and philosopher Sun Tzu offered

thoughts on strategy that continue to be studied carefully by
business and military leaders today. Sun Tzu's best-known work
is The Art of War. As this title implies, Sun Tzu emphasized the
creative and deceptive aspects of strategy.
One of Sun Tzu's ideas that has numerous business applications
is that winning a battle without fighting is the best way to win.
Apple's behavior in the personal computer business offers a
good example of this idea in action. Many computer makers,
such as Toshiba, Acer, and Lenovo, compete with one another
based primarily on price. This competition leads to price wars
that undermine the computer makers' profits. In contrast, Apple
prefers to develop unique features for its computers—features
that have created a fiercely loyal set of customers. Apple boldly
charges far more for its computers than its rivals charge for
theirs. Apple does not even worry much about whether its
computers' software is compatible with the software used by
most other computers. Rather than fighting a battle with other
firms, Apple wins within the computer business by creating its
own unique market and by attracting a set of loyal customers.
Perhaps the most famous example of strategy in ancient times
revolves around the Trojan horse. According to legend, Greek
soldiers wanted to find a way to enter the gates of Troy and
attack the city from inside. They devised a ploy that involved
creating a giant wooden horse, hiding soldiers inside the horse,
and offering the horse to the Trojans as a gift. The Trojans were
fooled and brought the horse inside their city. When night
arrived, the hidden Greek soldiers opened the gates for their
army, leading to a Greek victory. In modern times, the
term Trojan horse refers to gestures that appear on the surface
to be beneficial to the recipient but that mask a sinister intent.
Computer viruses also are sometimes referred to as Trojan
horses.
A far more noble approach to strategy than the Greeks' is
attributed to King Arthur of Britain. Unlike the hierarchical
approach to organizing Moses used, Arthur allegedly considered
himself and each of his knights to have an equal say in plotting

the group's strategy. Indeed, the group is thought to have held
its meetings at a round table so that no voice, including
Arthur's, would be seen as more important than the others. The
choice of furniture in modern executive suites is perhaps
revealing. Most feature rectangular meeting tables, perhaps
signaling that one person—the chief executive officer—is in
charge.
Another implication for strategic management offered by King
Arthur and his Knights of the Round Table involves the concept
of mission. Their vigorous search to find the Holy Grail (the
legendary cup used by Jesus and his disciples at the Last
Supper) serves as an exemplar for the importance of a central
mission to guide organizational strategy and actions.
Lessons Offered by Military Strategy
Key military conflicts and events have shaped the understanding
of strategic management. Indeed, the word strategy has its roots
in warfare. The Greek verb strategos means army leader and the
idea of stratego (from which we get the word strategy) refers to
defeating an enemy by effectively using resources (Bracker,
1980).
A book written nearly five hundred years ago is still regarded
by many as an insightful guide for conquering and ruling
territories. Niccolò Machiavelli's 1532 book The Prince offers
clever tactics for success to government leaders. Some of the
book's suggestions are quite devious, and the
word Machiavellian is used today to refer to acts of deceit and
manipulation.
Additionally, two wars fought on American soil provide
important lessons about strategic management. In the late
1700s, the American Revolution pitted the American colonies
against mighty Great Britain. The Americans relied on
nontraditional tactics, such as guerilla warfare and the strategic
targeting of British officers. Although these tactics were
considered by Great Britain to be barbaric, they later became
widely used approaches to warfare. The Americans owed their
success in part to help from the French navy, illustrating the

potential value of strategic alliances.
Nearly a century later, Americans turned on one another during
the Civil War. After four years of hostilities, the Confederate
states were forced to surrender. Historians consider the
Confederacy to have had better generals, but the Union
possessed greater resources, such as factories and railroad lines.
As many modern companies have discovered, sometimes good
strategies simply cannot overcome a stronger adversary.
Two wars fought on Russian soil also offer insights. In the
1800s, a powerful French invasion force was defeated in part by
the brutal nature of Russian winters. In the 1940s, a similar fate
befell German forces during World War II. Against the advice
of some of his leading generals, Adolf Hitler ordered his army
to conquer Russia. Like the French before them, the Germans
were able to penetrate deep into Russian territory. As George
Santayana had warned, the forgotten past was about to repeat
itself. Horrific cold stopped the German advance. Russian
forces eventually took control of the combat, and Hitler
committed suicide as the Russians approached the German
capital, Berlin.
Five years earlier, Germany ironically had benefited from an
opponent ignoring the strategic management lessons of the past.
In ancient times, the Romans had assumed that no army could
cross the Alps. An enemy general named Hannibal put his men
on elephants, crossed the mountains, and caught Roman forces
unprepared. French commanders made a similar bad assumption
in 1940. When Germany invaded Belgium (and then France) in
1940, its strategy caught French forces by surprise. The top
French commanders assumed that German tanks simply could
not make it through a thickly wooded region known as the
Ardennes Forest. As a result, French forces did not bother
preparing a strong defense in that area. Most of the French army
and their British allies instead protected against a small,
diversionary force that the Germans had sent as a deception to
the north of the forest. German forces made it through the
forest, encircled the allied forces, and started driving them

toward the ocean. Many thousands of French and British
soldiers were killed or captured. In retrospect, the French
generals had ignored an important lesson of history: do not
make assumptions about what your adversary can and cannot do.
Executives who make similar assumptions about their
competitors put their organizations' performance in jeopardy.
Strategic Management as a Field of Study
Universities contain many different fields of study, including
physics, literature, chemistry, computer science, and
engineering. Some fields of study date back many centuries
(e.g., literature), while others (e.g., computer science) have
emerged only in recent years. Strategic management has been
important throughout history, but the evolution of strategic
management into a field of study has mostly taken place over
the past century. A few of the key business and academic events
that have helped the field develop are discussed next.
The ancient Chinese strategist Sun Tzu made it clear that
strategic management is part art, but it is also part science.
Major steps toward developing the scientific aspect of strategic
management were taken in the early twentieth century by
Frederick W. Taylor. In 1911, Taylor published The Principles
of Scientific Management. The book was a response to Taylor's
observation that most tasks within organizations were organized
haphazardly. Taylor believed that businesses would be much
more efficient if management principles were derived through
scientific investigation. In The Principles of Scientific
Management, Taylor stressed how organizations could become
more efficient through identifying the "one best way" of
performing important tasks. Implementing Taylor's principles
was thought to have saved railroad companies hundreds of
millions of dollars. Although many later works disputed the
merits of trying to find the "one best way," Taylor's emphasis
on maximizing organizational performance became the core
concern of strategic management as the field developed.
Also in the early twentieth century, automobile maker Henry
Ford emerged as one of the pioneers of strategic management

among industrial leaders. At the time, cars seemed to be a
luxury item for wealthy people. Ford adopted a unique strategic
perspective, however, and boldly offered the vision that he
would make cars the average family could afford. Building on
ideas about efficiency from Taylor and others, Ford organized
assembly lines for creating automobiles that lowered costs
dramatically. Despite his wisdom, Ford also made mistakes.
Regarding his company's flagship product, the Model T, Ford
famously stated, "Any customer can have a car painted any
color that he wants so long as it is black." When rival
automakers provided customers with a variety of color choices,
Ford had no choice but to do the same.
In 1912, Harvard University became the first higher education
institution to offer a course focused on how business executives
could lead their organizations to greater success. The approach
to maximizing performance within this "business policy" course
was consistent with Taylor's ideas. Specifically, the goal of the
business policy course was to identify the one best response to
any given problem that an organization confronted. By finding
and pursuing this ideal solution, the organization would have
the best chance of enjoying success.
In the 1920s, A&W Root Beer became the first franchised
restaurant chain. Franchising involves an organization (called a
franchisor) granting the right to use its brand name, products,
and processes to other organizations (known as franchisees) in
exchange for an up-front payment (a franchise fee) and a
percentage of franchisees' revenues (a royalty fee). This simple
yet powerful business model allows franchisors to grow their
brands rapidly and provides franchisees with the safety of a
proven business format. Within a few decades, the franchising
business model would fuel incredible successes for many
franchisors and franchisees across a variety of industries.
Today, for example, both Subway and McDonald's have more
than thirty thousand restaurants carrying their brand names.
The acceptance of strategic management as a necessary element
of business school programs took a major step forward in 1959.

A widely circulated report created by the Ford Foundation
recommended that all business schools offer a capstone course.
The goal of this course would be to integrate knowledge across
different business fields such as marketing, finance, and
accounting to help students devise better ideas for addressing
complex business problems. Rather than seeking a "one best
way" solution, as advocated by Taylor and Harvard's business
policy course, this capstone course would emphasize students'
critical thinking skills in general and the notion that multiple
ways of addressing a problem could be equally successful in
particular. The Ford Foundation report was a key motivator that
led US universities to create strategic management courses in
their undergraduate and master of business administration
programs.
In 1962, business and academic events occurred that seemed
minor at the time but would later give rise to huge changes.
Building on the business savvy that he had gained as a
franchisee, Sam Walton opened the first Walmart in Rogers,
Arkansas. Relying on a strategy that emphasized low prices and
high levels of customer service, Walmart grew to 882 stores
with a combined $8.4 billion dollars in annual sales by 1985. A
decade later, sales reached $93.6 billion across nearly 3,000
stores. In 2010, Walmart was the largest company in the world.
In recent years, Walmart has arguably downplayed customer
service in favor of cutting costs. Time will tell whether
deviating from Sam Walton's original strategic positioning will
hurt the company.
Also in 1962, Harvard professor Alfred Chandler published
Strategy and Structure: Chapters in the History of the Industrial
Enterprise. This book describes how strategy and organizational
structure need to be consistent with each other to ensure strong
firm performance, a lesson that Moses seems to have mastered
during the Hebrews' exodus from Egypt. Many people working
in the field of strategic management consider Chandler's book to
be the first work of strategic management research.
Two pivotal events that firmly established strategic management

as a field of study took place in 1980. One was the creation of
the Strategic Management Journal. The introduction of the
journal offered a forum for researchers interested in building
knowledge about strategic management. Much like important
new medical findings that appear in the Journal of the American
Medical Association and the New England Journal of Medicine,
the Strategic Management Journal publishes pathbreaking
insights about strategic management.
The second pivotal event in 1980 was the publication
of Competitive Strategy: Techniques for Analyzing Industries
and Competitors by Harvard professor Michael Porter. This
book offers concepts such as five forces analysis and generic
strategies that continue to strongly influence how executives
choose strategies more than thirty years after the book's
publication.
Many consumers today take web-based shopping for granted,
but this channel for commerce was created less than two
decades ago. The 1995 launch of Amazon by founder Jeff Bezos
was perhaps the pivotal event in creating Internet-based
commerce. In pursuit of its vision "to be earth's most customer-
centric company," Amazon has diversified far beyond its
original focus on selling books and has evolved into a dominant
retailer. Powerful giants have stumbled badly in Amazon's
wake. Sears had sold great varieties of goods (even including
entire houses) through catalogs for many decades, as had J. C.
Penney. Neither firm created a strong online sales presence to
keep pace with Amazon, and both eventually dropped their
catalog businesses. As often happens with old and large firms,
Sears and J. C. Penney were outmaneuvered by a creative and
versatile upstart.
Ethics have long been an important issue within the strategic
management field. Attention to the need for executives to act
ethically when creating strategies increased dramatically in the
early 2000s when a series of companies, such as Enron
Corporation, WorldCom, Tyco, Qwest, and Global Crossing
were found to have grossly exaggerated the strength of their

performance. After a series of revelations about fraud and
corruption, investors in these firms and others lost billions of
dollars, tens of thousands of jobs were lost, and some
executives were sent to prison.
Like ethics, the implications of international competition are of
central interest to strategic management. Provocative new
thoughts on the nature of the international arena were offered in
2005 by Thomas L. Friedman. In his book The World Is Flat: A
Brief History of the Twenty-First Century, Friedman argues that
many of the advantages that firms in developed countries such
as the United States, Japan, and Great Britain take for granted
are disappearing. One implication is that these firms will need
to improve their strategies if they are to remain successful.
Looking to the future, it appears likely that strategic
management will prove to be more important than ever. In
response, researchers who are interested in strategic
management will work to build additional knowledge about how
organizations can maximize their performance. Executives will
need to keep track of the latest scientific findings. Meanwhile,
they also must leverage the insights that history offers on how
to be successful while trying to avoid history's mistakes.
Key Points
· Although strategic management as a field of study has
developed mostly over the last century, the concept of strategy
is much older. Understanding strategic management impart the
lessons that ancient history and military strategy provide.
Understanding the Strategic Management Process
Strategic management is a process that involves building a
careful understanding of how the world is changing and how
those changes might affect a particular firm. CEOs, such as the
late Apple founder, Steve Jobs, must be able to carefully
manage the possible actions that their firms might take to deal
with changes that occur in their environment.
The strategic management process begins with an understanding
of strategy and performance. As we have noted in this
introductory chapter, strategic management is both an art and a

science, and it involves multiple conceptualizations of the
notion of strategy drawn from recent and ancient history.
Consequently, how managers understand and interpret the
performance of their firms is often central to understanding
strategy.
Environmental and internal scanning is the next stage in the
process. Managers must constantly scan the external
environment for trends and events that affect the overall
economy, and they must monitor changes in the particular
industry in which the firm operates. For example, Apple's
decision to create the iPhone demonstrates its ability to
interpret that traditional industry boundaries that distinguished
the cellular phone industry and the computer industry were
beginning to blur. At the same time, firms must evaluate their
own resources to understand how they might react to changes in
the environment. For example, intellectual property is a vital
resource for Apple. Between 2008 and 2010, Apple filed more
than 350 cases with the US Patent and Trademark Office to
protect its use of such words as apple, pod, and safari (Apple
Inc. litigation, n.d.).
A classic management tool that incorporates the idea of
scanning elements both external and internal to the firm is
SWOT (strengths, weaknesses, opportunities, and threats)
analysis. Strengths and weaknesses are assessed by examining
the firm's resources, while opportunities and threats refer to
external events and trends. The value of SWOT analysis
parallels ideas from classic military strategists such as Sun Tzu,
who noted the value of knowing yourself as well as your
opponent.
Strategy formulation is the next step in the strategic
management process. This involves developing specific
strategies and actions. Certainly, part of Apple's success is due
to the unique products it offers the market, as well as how these
products complement one another. A customer can buy an iPod
that plays music from iTunes—all of which can be stored in
Apple's Mac computer (Inside CRM, n.d.).

Strategy implementation is the final stage of the process. One
important element of strategy implementation entails crafting an
effective organizational structure and corporate culture. For
example, part of Apple's success is due to its consistent focus
on innovation and creativity that Steve Jobs described as similar
to that of a start-up.
Key Points
· Strategic management is a process that requires the ability to
manage change. Consequently, executives must be careful to
monitor and to interpret the events in their environment, to take
appropriate actions when change is needed, and to monitor their
performance to ensure that their firms are able to survive and, it
is hoped, thrive over time.
Conclusion
This chapter provides an overview of strategic management and
strategy. Ideas about strategy span many centuries, and modern
understanding of strategy borrows from ancient strategies as
well as classic militaries strategies. You should now understand
that there are numerous ways to conceptualize the idea of
strategy and that effective strategic management is needed to
ensure the long-term success of firms. The study of strategic
management provides tools to effectively manage organizations,
but it also involves the art of knowing how and when to apply
creative thinking. Knowledge of both the art and the science of
strategic management is needed to help guide organizations as
their strategies emerge and evolve over time. Such tools will
also help you effectively chart a course for your career and to
understand the effective strategic management of the
organizations for which you will work.
References
Value Chain
The value-added chain is the process by which technology is
combined with material and labor inputs, and then processed
inputs are assembled, marketed, and distributed. The value

chain shows the links, or chain, of the distinct activities and
processes that a company performs to create, manufacture,
market, sell, and distribute its product or service. The focus is
on the activities that create value for customers.
Value-chain activities can be segregated to provide a detailed
identification of a company’s activities and the capabilities that
correspond to each activity. The value-added chain is best
defined in terms of each link's contribution to total cost. By
comparing the costs incurred by each link and against
competitors, the company can locate the critical success factors
that must be addressed.
The importance of value-chain analysis is that it helps portray
the costs in a company’s operations that might be impacted by a
change in one of the chain's processes. By comparing a
company’s value chain to its competitors’, you can identify
areas for improvement.
It is important to note that the value chain is influenced by the
type of strategy the company and its competitors follow. If the
company is a high-value, high-quality market leader, its chain
will be different from the low-cost, high-volume competitor.
These differences influence value-chain analysis. Companies
must make sure that their business strategy is in tune with their
strategic objectives.
The airline industry represents a good example of
differentiation. Many airlines operate under similar
circumstances and share similar cost structures and routes.
Methods of differentiation can include lowest-price or on-time
record, and areas such as boarding procedures, carry-on
policies, airline miles, and social media can drive customer
loyalty. The example of Southwest Airlines illustrates how
putting people first creates a solid marketing position. It is
important to identify the opportunities that increase a product or
service's perceived value to the customer (Smartsheet, n.d.).
Another example is the American steel industry, which consists
of large, vertically integrated carbon steel makers. Some of the
steel companies are integrated from ore mining to finished

products. Their profitability has been threatened by mini steel
mills and imports. Steel producers must choose either to reduce
crude steel production and focus on flat and specialty steel
products, or cut costs. The value-added chain is useful in
identifying links that are not cost competitive.
For strategies driven by product differentiation, the value-added
chain is best defined in terms of the contribution of each link to
market value. This method helps identify the product attributes
preferred by consumers and links them to the value-added
activities in the chain that generate this attribute.
However, assets that underlie the production of these attributes
cannot be easily redeployed along the value-added chain. There
is also the risk of product or process imitation by competitors.
Companies, therefore, often pursue different strategies.
Analysis of value chains shows that strategy is not just about
the selection of profitable product markets. It is also about
investing in the links that generate the product attribute desired
by consumers and which correspond to the firm's distinctive
competence relative to its competitors.
Depending upon the customer preferences and competitors’
strengths, the company can decide to redeploy its assets, pursue
its traditional business, withdraw from the business, or make an
acquisition of the critical assets.
The value-chain concept is thus useful in isolating the critical
success factors of a strategy. For strategies in competitive
industries, the chain isolates those links that are not currently
viable relative to competition. For strategies of product
differentiation, the chain indicates those links that generate
downstream economic rents.
In the global context, the chain of comparative advantage for
countries must be explored.
References

389
Value chain
The value chain developed by Michael Porter represents one of
the first
serious attempts in the field of strategy to analyze customer
need struc-
tures. Porter presented the value chain in his book Competitive
Advantage,
published in 1985.
Value is defined in this context as what buyers are willing to
pay for what
they get from suppliers. A company is profitable if the value it
generates
exceeds the cost it has to pay for generating that value. Analysis
of the
competitive situation must therefore be based not on cost, but
on value.
According to Porter, a company’s competitive edge cannot be
understood
simply by studying the company as a whole. A competitive
advantage arises
out of the manifold activities which a company pursues in its
design,
production, marketing, delivery and supporting functions. Each

of these
activities can contribute to the company’s relative cost position
and create
a basis for differentiation.
Porter places the corporate value chain in a greater stream of
activities,
which he calls the value system; it is illustrated below.
Professor Michael Porter has drawn these two diagrams to
illustrate the
value chain (also called the added value chain). It describes the
addition of
value to a product from raw material and purchasing to the
finished article.
By analyzing the process step by step, we can identify links in
the chain where
we are competitive or vulnerable.
Su
pp
or
t a
ct
iv
iti

es
Raw material Components Finished products Sales
Corporate structure
Human resources
Technological development
Purchasing
Primary activities
Inb
ou
nd
lo
gis
tic
s
M
an
uf
ac
tu
rin
g

Ou
tb
ou
nd
lo
gis
tic
s
M
ar
ke
tin
g
an
d
sa
les
Se
rv
ice
M
argin

M
ar
gi
n
390
Porter’s value system
Porter’s definition of value in a competitive context is the sum
a buyer is
willing to pay for what a supplier delivers. Value is measured as
total
revenue, which is a function of the price a company’s product
fetches and
the number of units the company can sell.
Every value-generating activity involves:
• bought-in components.
• human resources.
• some form of technology.
• information flows of various kinds.
Value-generating activities can be divided into two classes:
1. Primary activities

2. Support activities
Primary activities are shown under the large arrow. They are the
activi-
ties that result in the physical creation of a product and its sale,
delivery
to the buyer, and the after-sales market.
1. Inbound logistics comprises reception, warehousing, sorting,
handling, buffer storage, stocktaking, transportation and back
deliveries.
2. Manufacturing comprises all activities that convert the inflow
into
end products, such as machining, packaging, assembly, plant
maintenance and testing.
3. Outbound logistics comprises activities concerned with
shipment,
warehousing and physical distribution of products to buyers.
This
includes order processing, scheduling, deliveries,
transportation,
and so on.
4. Marketing and sales comprises all activities designed to

persuade
buyers to accept and pay for the product. This includes
advertising,
sales promotion, personal selling, quotation writing, choice of
distribution channels and pricing.
391
5. Service comprises all activities designed to maintain or
enhance
the value of the product delivered. This includes installation,
repairs, training, spare parts and product modification.
Support activities are shown on the top four lines of the figure.
They are:
1. Corporate structure, which embraces a number of activities
including management, planning, finance, accounting, legal
business, relations with the public sector and quality
management.
2. Human resource management, which includes the
recruitment,
training, development and remuneration of all categories of
personnel.

3. Technological development, which affects every value-
generating
activity in the areas of know-how, procedures and processes.
4. Purchasing, which has to do with procurement of materials,
that
is, the actual function of buying supplies, not the logistic flow
of
materials.
RECOMMENDED READING
1. Kim B Clark et al, Harvard Business Review on Managing
the
Value Chain.
2. Michael E Porter, Competitive Strategy: Creating and
Sustaining
Superior Performance.
Vertical integration
Vertical integration is an expression for the portion of value
added that
is produced within the framework of common ownership. If a
product is
sold, its price probably comprises the input costs of materials,
components

and systems. If the price of buying this input is high,
integration is low.
But if the major share of sales value is produced internally in
one’s organ-
ization, integration is high. The term horizontal integration is
used
considerably less often nowadays. It expresses the utilization of
a wide
range of products to achieve maximum customer satisfaction.
Business Strategy
"Would you tell me, please, which way I ought to go from
here?"
"That depends a good deal on where you want to get to," said
the Cat.
"I don’t much care where," said Alice.
"Then it doesn’t matter which way you go," said the Cat.
Lewis Carroll, Alice in Wonderland
Strategy is essentially a comprehensive plan to help an
organization achieve its specific business objectives, such as
growth, a stronger competitive position, or stronger financial
performance. The choice of objective lies at the heart of the
strategy. As a result, strategies reflect the company's strengths,
vulnerabilities, resources, and opportunities. They also reflect
the firm's competitors and its market.
The strategy matches internal resources to changing external
demand. It determines how the firm differentiates itself from
competitors and how it earns revenues and profits. Strategy

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