Here on our website, we've listed the chapter synopsis from the book's expanded Table of Contents. Thesis statements are then provided for the main source(s) discussed in each section of the chapter, along with a list of additional readings discussed in the section. Where possible, we've provided links to publicly available sources. To read our detailed synopsis, discussion, and thoughts about the practical application of the ideas presented in the sources listed below, buy the chapter by clicking on the cover image (or buy the entire book).

Chapter 1: Strategy

Strategy is the long-term direction and scope of an organization as that organization pursues advantage through its configuration of resources, to meet the needs of markets and to fulfill stakeholder expectations (Johnson and Scholes 2006). Corporate strategy addresses which business a corporation will participate in, and business strategy focuses on how a particular business competes within its industry.

Michael Porter's Competitive Forces

The profit potential of an industry is determined by five competitive forces. Firms can use cost leadership, differentiation, or focus to use these forces to establish an advantage.

ThesisMICHAEL PORTER. 1980. Competitive Strategy, Chapters 1–2. New York, Free Press.

Thesis: There are five competitive forces whose collective strength determines the ultimate profit potential in an industry: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing firms. Managers can use these frameworks to determine the fit of their firm to the industry.

Additional Readings:

  • Porter, Michael. 1996. "What Is Strategy?" Harvard Business Review 74(November–December), 61–78.

The Institutional Economics Approach

Costs associated with market transactions play a role in determining how goods get produced and how firms are structured.

ThesisOLIVER WILLIAMSON and WILLIAM OUCHI. 1981. "The Markets and Hierarchies Program of Research: Origins, Implications, and Prospects." In A. H. Van de Ven and W. F. Joyce (editors), Perspectives on Organizational Design and Behavior. New York, Wiley. pp. 347–370.

Thesis: A transaction cost is a cost of coordination incurred in making an economic exchange, including search and information costs, bargaining costs, and enforcement costs. Costs associated with market transactions sometimes favor in-house production (i.e., hierarchies) and sometimes favor contracts (i.e., markets).

Additional Readings:

  • Fowell, Walter. 1990. "Neither Market Nor Hierarchy: Network Forms of Organization." In B. Staw and L. Cummings (editors), Research in Organizational Behavior, vol. 12. Greenwich, JAI Press. pp. 295–336.
  • Ghoshal, Sumantra and Peter Moran. 1996. "Bad for Practice: A Critique of the Transaction Cost Theory." Academy of Management Review 21(1), 13–47.
  • Perrow, Charles. 1981. "Markets, Hierarchies, and Hegemony." In A. H. Van de Ven and W. F. Joyce (editors), Perspectives on Organizational Design and Behavior. New York, Wiley. pp. 371–386.
  • Porter, Michael. 1985. Competitive Advantage. New York, Free Press.
  • Zajac, Edward and Cyrus Olsen. 1993. "From Transaction Cost to Transaction Value Analysis: Implications for the Study of Interorganizational Strategies." Journal of Management Studies 30(1), 131–145.

The Resource-Based View of the Firm

The resources of a firm are the primary determinants of its competitive advantage.

ThesisBIRGER WERNERFELT. 1984. "The Resource-Based Theory of the Firm." Strategic Management Journal 5(2), 171–180.

Thesis: Strategies that are not based on resources are unlikely to succeed, for two reasons. Firms have different resource endowments, and it takes time and money to change these endowments. In addition, competitive market dynamics ensure that a firm will always be up against the best in whatever market it chooses to compete.

Additional Readings:

Strategic Capabilities

A firm's success is determined by its core competencies, and by its strategic intent to pursue ambitious goals.

ThesisC. K. PRAHALAD and GARY HAMEL. 1990. "The Core Competence of the Corporation." Harvard Business Review 68(May–June), 79–91.

Thesis: Executives are now judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible.

ThesisGARY HAMEL and C. K. PRAHALAD. 1989. "Strategic Intent." Harvard Business Review 67(May–June), 63–76.

Thesis: It is not resources but rather resourcefulness that drives success, and the resourcefulness of a company can be stimulated by choosing ambitious goals that are clearly beyond a firm's existing capabilities.

Additional Readings:

  • Banerji, Shameet, Paul Leinwand, and Cesare Mainardi. 2009. Cut Costs + Grow Stronger. Cambridge, Harvard Business School Press.
  • Campbell, Andrew, Michael Goold, and Marcus Alexander, 1995. "Corporate Strategy: The Quest for Parenting Advantage." Harvard Business Review 73(March–April), 120–132.
  • Hamel, Gary. 1996. "Strategy as Revolution." Harvard Business Review 74(July–August), 69–82.

Game Theory

Game theory provides a useful set of tools for corporate strategy.

ThesisADAM BRANDENBURGER and BARRY NALEBUFF. 1995. "The Right Game: Using Game Theory to Shape Strategy." Harvard Business Review 73(July–August), 57–71.

Thesis: It is more rewarding and profitable to shape the game you play rather than to play the game you find. Maximizing payoffs requires evaluating both win–win as well as win–lose opportunities versus other players in your space. Having a unique product is optional, but creating the right game is essential to building the best long-term position.

Additional Reading:

  • Brandenberger, Adam and Barry Nalebuff. 1997. Co-Opetition. New York, Doubleday.

Learning Versus Planning

Interviews with senior managers about how they actually establish strategy suggest that that the process may be more evolutionary and reactive than part of a deliberate long-term plan.

ThesisHENRY MINTZBERG, RICHARD PASCALE, MICHAEL GOOLD, and RICHARD RUMELT. 1996. "The Honda Effect Revisited." California Management Review 38(4), 78–117.

Thesis: The authors debate each other as to whether competitive advantage is arrived at through a systematic implementation of carefully thought-out strategy (planning) or through an often disjointed series of reactions to external events (learning).

Sustainable Competitive Advantage and Social Capital

It may not be possible to build a sustained competitive advantage. Social networks provide a means to continually rebuild advantage over time.

ThesisRICHARD D'AVENI. 1994. Hypercompetition, Chapters 1–7. New York, Free Press.

Thesis: Strong competitive positions are temporary, and competition is defined as the process of building a series of new temporary advantages over time.

ThesisJANINE NAHAPIET and SUMANTRA GHOSHAL. 1998. "Social Capital, Intellectual Capital, and the Organizational Advantage." Academy of Management Review 23(2), 242–266.

Thesis: Networks of relationships represent a valuable resource. The interaction of this relationship capital and intellectual capital underpins organizational advantage.

Additional Readings:

Mergers and Acquisitions

Despite their popularity, the evidence suggests that most acquisitions are unsuccessful. However, it is possible to undertake successful M&A.

Studies show that 50-80% of acquisitions fail, and acquirers experience a negative average impact to their stock price. Acquisitions remain popular despite the high failure rate, and most of the explanations proposed by academics are not flattering to the executives of acquiring firms. For those committed to pursuing mergers, we give advice on how to beat the odds.

Readings:

Real Options

Creating the ability now to carry out a future initiative itself has strategic value. Incorporating this value can improve decision making.

ThesisTIMOTHY LUEHRMAN. 1998. "Strategy as a Portfolio of Real Options." Harvard Business Review 76(September–October), 89–99.

Thesis: Specifically identifying the real options created by projects or strategies can improve decisions about the sequence and timing of strategic investments.

Additional Readings:

Scenario Analysis

There is a role for stories over quantitative analysis in setting strategy. Stories can help identify valuable strategic goals.

ThesisROBBIE DAVIS-FLOYD. 1998. "Storying Corporate Futures: The Shell Scenarios." In G. Marcus (editor), Corporate Futures: The Diffusion of the Culturally Sensitive Corporate Form. Chicago, University of Chicago Press. pp. 141–176.

Thesis: Financial projections are an incomplete form of planning for the future. Scenarios in the form of stories are a valuable tool for evaluating different possible futures.

Strategy Execution

Strategy formulation is not useful unless it is executed well and on time. Companies need to overcome barriers to successful execution of strategy.

ThesisGARY NEILSON, KARLA MARTIN, and ELIZABETH POWERS. 2008. "The Secrets to Successful Strategy Execution." Harvard Business Review 86(May–June), 61–70.

Thesis: Making it clear who owns decisions and ensuring that information flows to where it's needed are the key levers for successful execution of strategic initiatives.

Additional Readings:

  • Isaacson, Walter. 2011. Steve Jobs. New York, Simon & Schuster.
  • Osterwalder, Alexander and Yves Pigneur. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, Wiley.
  • Rogers, Paul and Marcia Blenko, 2006. "Who Has the D? How Clear Decision Roles Enhance Organizational Performance." Harvard Business Review 84(January–February), 53–61.