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The structure of strategy

John Kay takes a view of strategy which disputes the common distinctions between formulation and implementation, and between programmed ...

By John Kay . 01 September 2008

John Kay takes a view of strategy which disputes the common distinctions between formulation and implementation, and between programmed and adaptive strategies.
The structure of strategyHe argues that corporate success derives from a competitive advantage which is based on distinctive capabilities, which is most often derived from the unique character of a firm’s relationships with its suppliers, customers or employees, and which is precisely identified and applied to relevant markets. Strategy is that process.

In 1986 I was offered the opportunity, and substantial resources, to answer the question, “What are the origins of industrial success?” There are, perhaps, more important questions, but not many, and that was certainly the most important question I felt in any way equipped to try to answer. So I accepted the challenge.

It was obvious that there was no shortage of data. Every corporation is required to file detailed returns of its activities. In all Western economies there are several journals that track the performance and activities of leading companies. Case studies, business histories and business biographies describe how decisions were made and problems overcome. I began to understand that what was needed was not to collect new information, but to establish a framework for understanding what was already known.

There were those who told me that the task I had set myself could not be done, or was not worth doing. Business problems were too complex to be susceptible to the use of analytic techniques. Every situation was unique and there could be no valid generalizations. It had even been argued by some that the attempt to apply analytic methods to business issues is at the heart of Western economic decline.

It might be true that there can be no valid generalizations about business, and that there can be no general theories of the origins of corporate success or failure. But it does not seem very likely that it is true. It is not just that similar observations were made ahead of much greater leaps in scientific knowledge. How could we hope to understand something so complex, and so subject to change, as the motion of the planets or the makeup of genetic material?

The strategy of the firm is the match between its internal capabilities and its external relationships. It describes how it responds to its suppliers, its customers, its competitors, and the social and economic environment within which it operates. These aspects of management activity are the subject of strategy. Did it make sense for Benetton, an Italian knitwear manufacturer, to move into retailing, and was it right to decide to franchise most of its shops to individual entrepreneurs? Should Saatchi & Saatchi have attempted to build a global advertising business? What segment of the car market was most appropriate for BMW? These are typical issues of corporate strategy. Corporate strategy is concerned with the firm’s choice of business, markets and activities.

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