Markets are changing, competition is shifting and your business may be suffering or perhaps thriving, at least for now. Whatever the immediate circumstances, managers are forever asking the same questions: Where do we go from here, and which strategy will get us there? Should we fortify our strategic position, move into nearby markets or branch out into radically new territory? To help guide our decisions, most of us have a smorgasbord of strategic frameworks to draw on. But which one is the right one, and when? The strategic plans, market analyses and hefty binders that strategy consulting firms leave behind often jumble strategic lenses: Five-Forces analysis, portfolio review, assessment of core competencies; examination of profit pools, competitive landscape and so on. But which analyses are most helpful right now?
Most managers recognize that not all strategies work equally well in every setting. So to understand how to choose the right strategy at the right time, we analyzed the logic of the leading strategic frameworks used in business and engineering schools around the world. Then we matched those frameworks with the key strategic choices faced by dozens of industry leaders at different times, during periods of stability as well as change. (See “About the Research”) Two surprising insights emerged.
Image courtesy of Pixar Animation Studios
First, we discovered that the logics of the different strategic frameworks break into three archetypes: strategies of position, strategies of leverage and strategies of opportunity. What’s right for a company depends on its circumstances, its available resources and how management combines those resources together. (See “Choosing the Right Strategy.”)
Second, by observing market leaders employing archetypal strategies, we found that many assumptions about competitive advantage simply don’t hold. For example, although strategy gurus talk about strategically valuable resources, sometimes very ordinary resources assembled well are all that’s required for competitive advantage. Sometimes it makes good sense to bypass the largest markets and focus instead on where resources fit best. In other circumstances, it may be preferable to ignore existing resources and attack an emergent market. In some situations, basic rules of thumb work better than detailed plans.
1. M.E. Porter, “Competitive Strategy” (New York: Free Press, 1980); M.E. Porter, “What Is Strategy?,” Harvard Business Review 74, no. 6 (1996); J.W. Rivkin, “Imitation of Complex Strategies,” Management Science 46, no. 6 (2000): 824-844; N. Siggelkow, “Evolution Toward Fit,” Administrative Science Quarterly 47, no. 1 (2002): 125-159 C.B. Bingham and K.M. Eisenhardt, “Position, Leverage and Opportunity: A Typology of Strategic Logics Linking Resources with Competitive Advantage,” Managerial and Decision Economics 29, no. 2-3 (2008): 241-256.
2. N. Siggelkow, “Change in the Presence of Fit: The Rise, the Fall, and the Renaissance of Liz Claiborne,” Academy of Management Journal 44, no. 4 (2001): 838-857.
3. C.K. Pralahad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review 68, no. 3 (1990); D.J. Collis and C.A. Montgomery, “Competing on Resources,” Harvard Business Review 73, no. 4 (1995): 118-128 J. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17, no. 1 (1991): 99-120; M.A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource-Based View,” Strategic Management Journal 14, no. 3 (1993): 179-191.
4. J.P. Davis, K.M. Eisenhardt and C. B. Bingham, “Optimal Structure, Market Dynamism and the Strategy of Simple Rules,” Administrative Science Quarterly 54 (2009): 413-452.
5. S.L. Brown and K.M. Eisenhardt, “Competing on the Edge: Strategy as Structured Chaos” (Boston: Harvard Business School Press, 1998); K.M. Eisenhardt and D.N. Sull, “Strategy as Simple Rules,” Harvard Business Review 79, no. 1 (2001): 107-116; C.B. Bingham, K.M. Eisenhardt and N.R. Furr, “What Makes a Process a Capability? Heuristics, Strategy and Effective Capture of Opportunities,” Strategic Entrepreneurship Journal 1, no. 1-2 (2007): 27-47; C.B. Bingham and K.M. Eisenhardt, “Rational Heuristics: The ‘Simple Rules’ That Strategists Learn from Their Process Experiences,” Strategic Management Journal (in press); C.B. Bingham and J. Haleblian, “How Entrepreneurial Firms Learn Heuristics: Similarities and Differences Between Individual and Organizational Learning,” Strategic Entrepreneurship Journal (in press).