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Senior executives commonly ponder such questions as “What might give us continued competitive advantage?” and “What new products should we make or markets should we enter and how?” These questions go to the heart of a firm’s strategic vision — the shared understanding of what the firm should be and how it must change. I present a framework to help managers answer such questions critically and creatively. Knowing the answers constitutes the difference between muddling through and managing with confidence and foresight.
The framework has four steps:
- Generate broad scenarios of possible futures that your firm may encounter.
- Conduct a competitive analysis of the industry and its strategic segments.
- Analyze your company’s and your competition’s core capabilities.
- Develop a strategic vision and identify your strategic options.
The information generated by the first three steps is plotted on a matrix that helps managers see the direction (step four) they should take. The goal is to develop those core capabilities that will be effective for multiple strategic segments in several different possible futures. My approach to strategic vision building belongs to a newly emerging school of strategy called the “resource-based view.”1 Proponents of this approach view the successful firm as a bundle of somewhat unique resources and capabilities. If a firm’s core capabilities are scarce, durable, defensible, or hard to imitate, they can form the basis for sustainable competitive advantage and surplus profit. They also need to be well aligned with the future key success factors of the industry.
The methodology has been applied at corporate and divisional levels in U.S. and overseas firms and to functional strategy development as well (e.g., in marketing and R&D). It can prevent overconfidence and myopic framing of strategic issues from misleading the organization’s planning effort. The methodology has successfully encouraged top management at several companies to break out of traditional frames of mind and challenge conventional wisdom.
Throughout, I apply the methodology to Apple Computer, a company with a case history well known to most managers. I do not intend to explain all of Apple’s strategic problems but to illustrate the complexities of formulating a winning strategy. To establish a foundation for this exercise, I offer the following overview of Apple’s strategic position.
Background: Apple Computer
As the popular story goes, Apple developed in just over ten years from a garage operation into a multibillion-dollar company.
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1. See D.J. Teece, “Toward an Economic Theory of the Multiproduct Firm,” Journal of Economic Behavior and Organization 3 (1981): 39–63;
B. Wernerfelt, “A Resource-Based View of the Firm,” Strategic Management Journal 5 (1984): 171–180;
J.B. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17 (1) (1991): 99–120; and
R. Amit and P.J.H. Schoemaker, “Strategic Assets and Organizational Rent,” Strategic Management Journal (in press).
2. For details, see C.C. Swanger and M.A. Maidique, “Apple Computer: The First Ten Years” in Strategic Management of Technology and Innovation, eds. R.A. Burgelman and M.A. Maidique (Homewood, Illinois: Irwin, 1988), pp. 288–320.
3. E.P. Learned, C.R. Christensen, K.R. Andrews, and W. Guth, Business Policy (Homewood, Illinois: Irwin, 1969); and
K.R. Andrews, The Concept of Corporate Strategy (New York: Dow Jones-Irwin, 1971).
4. S.P. Schnaars, Megamistakes: Forecasting and the Myth of Rapid Technological Change (New York: Free Press, 1989).
5. See P. Wack, “Scenarios: Uncharted Waters Ahead,” Harvard Business Review, September–October 1985, pp. 72–89;
W.R. Huss, “A Move toward Scenarios,” International Journal of Forecasting 4 (1988): 377–388; and
P.J.H. Schoemaker, “When and How to Use Scenario Planning: A Heuristic Approach with Illustration,” Journal of Forecasting 10 (1991): 549–564.
6. J.E. Russo and P.J.H. Schoemaker, Decision Traps (New York: Simon & Schuster, 1990).
7. R. Axelrod, ed., Structure of Decision: The Cognitive Maps of Political Elites (Princeton, New Jersey: Princeton University Press, 1976); and
J. Diffenbach, “Influence Diagrams for Complex Strategic Issues,” Strategic Management Journal 3 (1982): 133–146.
8. See C.W. Kirkwood and S.M. Pollack, “Multiple Attribute Scenarios, Bounded Probabilities, and Threats of Nuclear Theft,” Futures, February 1982, pp. 545–553; and
9. For industry analysis, see:
M.E. Porter, Competitive Strategies (New York: Free Press, 1980).
10. A.C. Hax and N.S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (New York: Prentice-Hall, 1991).
11. See R. Rumelt, “How Much Does Industry Matter?” Strategic Management Journal 12 (1991): 167–185.
12. See J.S. Bain, Industrial Organization, 2nd ed. (New York: John Wiley & Sons, 1968); and
R.A. Garda, “A Strategic Approach to Market Segmentation,” McKinsey Quarterly, Autumn 1981.
13. On forces of competition, see:
M.E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review, March–April 1979, pp. 137–145.
On value chains, see:
M.E. Porter, Competitive Advantage (New York: Free Press, 1985).
14. D. Abell, Defining the Business (New York: Prentice-Hall, 1980), pp. 87–115.
15. P.E. Green and D.S. Tull, Research for Marketing Decisions (New York: Prentice-Hall, 1978).
16. Porter (1979).
17. C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, May–June 1990, pp. 79–91.
18. H. Itami, Mobilizing Invisible Assets (Cambridge, Massachusetts: Harvard University Press, 1987).
19. Amit and Schoemaker (1992).
20. See I. Dierickx and K. Cool, “Asset Stock Accumulation and Sustainability of Competitive Advantage,” Management Science 35 (1989): 1504–1514; and
21. J.A. De Vasconcellos and D.C. Hambrick, “Key Success Factors: Test of a General Theory in the Mature Industrial-Product Sector,” Strategic Management Journal l0 (1989): 367–382.
22. K. Ohmae, The Mind of the Strategist (New York: McGraw-Hill, 1982). Additional examples of KSFs are offered in:
De Vasconcellos and Hambrick (1989);
R.A. Irvin and E.G. Michaels, “Core Skills: Doing the Right Things Right,” The McKinsey Quarterly, Summer 1989, pp. 4–19; and Prahalad and Hamel (1990).
23. Porter (1980); and Porter (1985).
24. F.W. Gluck, “Vision and Leadership in Corporate Strategy,” in Readings on Strategic Management, ed. A. Hax (Cambridge, Massachusetts: Ballinger Publishing Co., 1984).
25. B. Tregoe and J. Zimmerman, Top Management Strategy (New York: Simon & Schuster, 1980).
26. R. Mason and I. Mitroff, Challenging Strategic Planning Assumptions (New York: John Wiley & Sons, 1981).
27. S.C. Myers, “Finance Theory and Financial Strategy,” Interfaces 14 (1984): pp. 126–137.
28. G.R. Mitchell and W.F. Hamilton, “Managing R&D as a Strategic Option,” Research Management, May–June 1988, pp. 15–22.