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Slide 01
BUSINESS
STRATEGY
- The Art and Science of Competitive Advantage
- How firms choose where to compete, how to win, and how to sustain advantage in a world of relentless competitive pressure. From Porter's Five Forces to platform economics.
- Competitive AdvantageFive ForcesBlue OceanDisruptionPlatform
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Slide 02
Strategy Is About Choices
- What Is Strategy?
- Strategy is not a plan — it is a set of integrated choices about where to play and how to win that creates a reinforcing competitive advantage. As Roger Martin argues, the essential strategic choice is one that makes competitors' choices suboptimal. Without trade-offs — things you deliberately don't do — there is no strategy, only a wish list.
- Where to Play
- Which markets, geographies, customer segments, price points, and channels will the firm compete in? The boundaries of competitive activity.
- How to Win
- What value proposition will serve chosen customers better than alternatives? Cost leadership, differentiation, or focus — Porter's three generic strategies.
- What Capabilities
- What activities and organizational capabilities are required to deliver the value proposition? This is where strategy touches operations — the system that makes the choice real.
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Slide 03
The Evolution of Strategy
- History of Strategic Thought
- 1960sStrategic planning era: formalized long-range planning at large corporations. SWOT analysis developed at Stanford. GE/McKinsey portfolio matrix (1971) introduced business unit strategy.
- 1980Michael Porter publishes Competitive Strategy — Five Forces and three generic strategies. Transforms strategy from planning exercise to rigorous economic analysis of industry structure.
- 1990Resource-Based View (Prahalad, Hamel, Barney): competitive advantage comes from firm-specific resources and capabilities, not just industry positioning. Core competencies framework.
- 1995Clayton Christensen introduces "disruptive innovation" in The Innovator's Dilemma — how low-end entrants eventually displace incumbents by improving along different performance dimensions.
- 2005Kim & Mauborgne publish Blue Ocean Strategy — creating uncontested market space rather than competing in existing industries.
- 2017Platform economics dominates: Rokkan, Parker, Van Alstyne, Choudary formalize multi-sided platform strategy for the digital economy.
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Slide 04
Five Forces Analysis
- Porter's Framework
- Michael Porter's Five Forces framework (1980) analyzes the structural attractiveness of an industry by mapping the five competitive forces that determine average profitability. Industry structure, not firm skill, determines the average return available — strategy determines whether you capture more or less than average.
- Supplier Power
- Concentration, switching costs, differentiated inputs. High power → lower margins for buyers. Vertical integration is one response.
- Buyer Power
- Concentration, price sensitivity, switching costs. Strong buyers extract value from the industry. Reduce by differentiating or fragmenting customers.
- New Entrants
- Capital requirements, scale economies, brand loyalty, switching costs, regulatory barriers. Entry threat caps incumbent profitability.
- Substitutes
- Products serving the same customer need differently. The ceiling on industry pricing is the value of the best substitute plus switching cost.
- + Competitive Rivalry: intensity of existing competition shapes the division of industry value among incumbents.
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Slide 05
Porter's Three Generic Strategies
- Generic Strategies
- Cost Leadership
- Be the lowest-cost producer in the industry. Profitability through lower costs at competitive prices, or through price reduction that captures share. Requires scale, efficiency, and tight cost control across the value chain.
- Examples: Walmart, Ryanair, Amazon Basics, Aldi
- Differentiation
- Create unique products or services that command a premium price. Buyers value the difference enough to pay more than the cost of producing it. Requires investment in the dimensions buyers value — not necessarily all dimensions.
- Examples: Apple, LVMH, Rolex, Dyson
- Focus
- Target a narrow segment with either cost or differentiation advantage. Serve that segment better than rivals who target broader markets. Risk: segment erosion or loss of differentiation from new entrants targeting your niche.
- Examples: Ferrari, Lululemon (early), Hermès
- Warning: "Stuck in the middle" — firms that pursue both cost leadership and differentiation without a clear choice often achieve neither. Strategic ambiguity is costly.
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Slide 06
Advantage from Within
- Resource-Based View
- Jay Barney's Resource-Based View (1991) challenged Porter: competitive advantage comes not from industry position but from firm-specific resources. The VRIN framework tests whether a resource generates sustainable advantage.
- Core competencies (Prahalad & Hamel, 1990) are capabilities that create customer value, are difficult to imitate, and can be leveraged into multiple markets. Honda's engine competency appears in cars, motorcycles, generators, and lawnmowers — the same underlying knowledge, multiple expressions.
- VRIN Framework
- Valuable — enables firm to exploit opportunity or neutralize threat
- Rare — not possessed by many competitors
- Inimitable — difficult to copy (path dependence, causal ambiguity, social complexity)
- Non-Substitutable — no equivalent strategic alternative exists
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Slide 07
The Value Creation Framework
- Competitive Advantage
- Fundamental strategy framework: Value Created = Willingness to Pay (WTP) - Opportunity Cost (OC) of suppliers. Competitive advantage means creating more value than rivals — either by raising WTP (differentiation) or lowering OC (cost advantage). The question is how much of the created value the firm can capture versus buyers and suppliers.
- Differentiation
- Raise WTP above industry average. Buyers value the product more than alternatives. The firm captures value through premium pricing. The premium must exceed the cost of the differentiating activities.
- Cost Advantage
- Lower OC below industry average. The firm produces equivalent value at lower cost. The cost savings flow to higher margins, lower prices, or investment in further advantage.
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Slide 08
Christensen's Disruption Theory
- Disruptive Innovation
- Clayton Christensen's The Innovator's Dilemma (1997) explained why excellent, well-managed companies fail when facing disruptive entrants. Incumbents rationally serve their best customers with sustaining innovations while ignoring low-end entrants who serve overshot customers or create new markets.
- The entrant starts at the low end, profits grow, and the entrant then moves upmarket — always improving along the dimension of the incumbent's weakness (price, simplicity, accessibility). By the time the incumbent responds, the entrant has built sufficient capability to take core customers.
- Steel minimills disrupted integrated mills by starting with scrap rebar
- Discount retailers (Walmart) disrupted department stores starting in rural markets
- Digital cameras disrupted film cameras — Kodak knew but couldn't abandon its business model
- Netflix disrupted Blockbuster with mail DVDs before streaming existed
- Smartphones disrupted digital cameras, GPS devices, mp3 players, calculators
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Slide 09
Create Uncontested Market Space
- Blue Ocean Strategy
- Kim & Mauborgne's framework argues that the most successful companies don't compete in existing market space (red oceans) — they create new demand in uncontested space (blue oceans) by simultaneously pursuing differentiation and low cost, typically by redefining the market.
- Red Ocean (Competition)
- Defined industry boundaries. Compete within existing demand. Differentiation-or-cost trade-off. Beat the competition.
- Result: Value and cost trade-off; limited growth; shrinking profits
- Blue Ocean (Creation)
- Undefined industry space. Create and capture new demand. Break the differentiation-cost trade-off. Make competition irrelevant.
- Examples: Cirque du Soleil, Yellow Tail wine, Nintendo Wii, Southwest Airlines
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Slide 10
The ERRC Grid
- Blue Ocean Tools
- The Eliminate-Reduce-Raise-Create Grid forces firms to challenge industry assumptions and reconstruct value around a new strategic logic.
- Eliminate
- Which factors the industry takes for granted should be eliminated? What do buyers never actually value? Eliminating costs without reducing buyer value.
- Reduce
- Which factors should be reduced well below the industry standard? Where has the industry over-invested relative to what buyers actually pay for?
- Raise
- Which factors should be raised well above the industry standard? What dimensions do buyers value that the industry currently delivers inadequately?
- Create
- Which factors should be created that the industry has never offered? New sources of value that attract non-customers or make switching worthless.
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Slide 11
Platform vs. Pipeline Business
- Platform Economics
- Traditional "pipeline" businesses create value through a linear chain — inputs → firm → outputs → customers. Platform businesses create value by facilitating interactions between two or more sides of a market. The platform doesn't produce the value; it enables others to do so.
- Platform economics inverts traditional competitive logic: where pipelines scale by controlling supply, platforms scale by attracting demand to attract supply to attract more demand — network effects are the engine. This is why platform companies can reach enormous scale with relatively few employees.
- Uber: no cars, world's largest ride-hailing company
- Airbnb: no real estate, world's largest accommodation network
- Facebook: no content, world's largest media company
- Alibaba: no inventory, world's most valuable retailer
- Apple App Store: 2M+ apps, most created by third parties
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Slide 12
Value Scales with Users
- Network Effects
- Metcalfe's Law: the value of a network scales with the square of the number of connected users. This creates winner-take-all dynamics — early leads become self-reinforcing, making it extremely difficult for later entrants to compete.
- Not all network effects are equal. Direct effects (same-side: more users → more value to each user) are typically stronger than indirect effects (cross-side: more sellers → more value to buyers). Geographic, time, and category limits affect how far network effects extend.
- Same-Side (Direct)
- More users make the product more valuable to each existing user. WhatsApp, telephone, LinkedIn. Often winner-take-all.
- Cross-Side (Indirect)
- More of one side makes the product more valuable to the other. More drivers → more useful for riders. More buyers → more attractive to sellers. Usually allows multi-homing.
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Slide 13
The Diversification Question
- Corporate Strategy
- Corporate strategy asks: what portfolio of businesses should the firm compete in? Diversification promises risk reduction and synergy but frequently destroys value. The conglomerate discount (the negative premium markets assign to diversified firms) is well-documented — markets often value the parts more than the whole.
- The key test (Michael Porter's "better-off" test): is each business better off in the portfolio than as a standalone? Does the corporate center add enough value through shared resources, capabilities, or governance to justify the overhead and complexity?
- When Diversification Adds Value
- Shared core competence across markets (Honda engines). Internal capital markets in imperfect external markets (some emerging economies). Genuine synergies in distribution, brand, or operations.
- When It Destroys Value
- Unrelated diversification for risk reduction investors can do themselves. Cross-subsidization keeping poor businesses alive. Management distraction and complexity exceeding synergy value.
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Slide 14
Portfolio Strategy: The Growth-Share Matrix
- BCG Matrix
- High Growth, High Share
- Stars
- Market leaders in growing markets. Require investment to maintain position. May become cash cows as market matures. Prioritize growth investment.
- High Growth, Low Share
- Question Marks
- High growth but not dominant. Require investment decisions: invest to become star or divest. The hardest portfolio choice.
- Low Growth, High Share
- Cash Cows
- Market leaders in mature markets. Generate cash without needing heavy investment. Fund stars and question marks. Protect and harvest.
- Low Growth, Low Share
- Dogs
- Neither market leaders nor in growing markets. Generally divest unless strategic fit justifies. May generate modest cash.
- X-axis: Relative Market Share → Y-axis: Market Growth Rate →
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Slide 15
Slide 15
- "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."— Sun Tzu, The Art of War
- 67%Of strategies fail at execution, not conception
- 5%Of employees understand their company's strategy (Kaplan & Norton)
- 30+Years Porter's Five Forces has dominated business school curricula
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Slide 16
Where Does Advantage Live?
- Value Chain Analysis
- Porter's Value Chain disaggregates the firm into strategically relevant activities, revealing where cost advantages or differentiation opportunities exist. Each activity is a source of cost or uniqueness — and a potential site of competitive advantage.
- Strategic analysis asks: which activities are strategically most important in our competitive position? Which activities connect to each other in ways that create hard-to-imitate systems? Where are our cost structures relative to competitors?
- Primary Activities
- Inbound logistics — receiving, warehousing, inventory management
- Operations — transforming inputs into final product
- Outbound logistics — order fulfillment, distribution
- Marketing & Sales — customer acquisition and channel management
- Service — after-sale support, maintenance
- Support Activities
- Procurement, Technology Development, Human Resources, Firm Infrastructure
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Slide 17
Strategic Interaction
- Competitive Dynamics
- First-Mover Advantage
- Early entry can secure scarce resources, build switching costs, and establish brand. But first movers also bear uncertainty costs and may pioneer markets for faster followers.
- Fast Follower
- Second movers learn from pioneer's mistakes, enter when demand is proven, and often out-execute on distribution and marketing. Google, Facebook, and iPhone were all second movers.
- Switching Costs
- Cost (financial, time, psychological) of changing supplier. High switching costs are the most durable source of competitive advantage — they make the status quo the default choice. Enterprise software is the archetype.
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Slide 18
The Balanced Scorecard
- Strategy Execution
- Kaplan & Norton's Balanced Scorecard (1992) argues that financial measures alone are insufficient — strategy must be tracked across four perspectives to align organization with strategy and balance leading and lagging indicators.
- Financial Perspective
- How do we look to shareholders? Revenue growth, margin, return on capital, economic value added.
- Customer Perspective
- How do customers see us? Satisfaction, retention, acquisition, market share, value proposition delivery.
- Internal Process
- What must we excel at? Critical processes for delivering the customer value proposition. Quality, innovation, cycle time, productivity.
- Learning & Growth
- Can we continue to improve? Employee capabilities, information systems, organizational climate. The foundation for the other three perspectives.
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Slide 19
Strategy in the Digital Age
- Digital Strategy
- Digital transformation isn't about technology — it's about business model redesign enabled by technology. Digitization (converting analog to digital) is complete; digitalization (using digital to change how work is done) is underway; digital transformation (fundamentally changing value creation) is strategic.
- Traditional moats — scale, geography, information asymmetries — erode faster in digital markets. New moats emerge: network effects, data advantages, ecosystem lock-in, and speed of learning. Strategy must be continuous because the environment changes faster than planning cycles.
- Data as strategic asset — marginal cost of data is zero; network effects compound
- API economy — ecosystem strategy: expose capabilities to third parties, capture network effects
- Speed-to-market — shipping and learning faster than competitors is itself an advantage
- Algorithm-driven personalization — mass customization at scale
- Platform vs. product dynamics — owning the market rather than winning in it
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Slide 20
Strategic Groups and Positioning Maps
- Competitive Positioning
- Strategic groups are clusters of firms in an industry that pursue similar strategies. Firms within a group are in closest competition; mobility barriers prevent easy movement between groups. Understanding strategic group structure reveals where competition is most intense and where gaps may exist.
- Positioning Within Group
- Within a strategic group, firms compete most directly. The positioning question becomes: how to achieve superior execution on the dimensions that matter to chosen customers?
- Between Groups
- Moving to a more attractive strategic group requires overcoming mobility barriers: capital, brand equity, regulatory approval, capability development. Often takes years or decades.
- White Space
- Unoccupied strategic positions — combinations of strategy dimensions no current firm occupies. Blue ocean creation is often about moving into strategic white space.
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Slide 21
What Customers Hire Your Product For
- Jobs To Be Done
- Christensen's Jobs To Be Done (JTBD) framework asks: what progress is the customer trying to make when they hire a product? Customers don't buy products — they hire them to do a job. Understanding the job reveals competitors that traditional category analysis misses.
- A milkshake is hired in the morning to make a boring commute bearable — competing with bananas and coffee, not other milkshakes. A house is hired partly to secure a school district for children. Defining the job correctly reframes innovation and strategy.
- Application to Strategy
- Map the full job, including functional, emotional, and social dimensions. Understand the circumstances triggering the hire and the switching between solutions.
- Identify what barriers prevent customers from completing the job better. These barriers are opportunity spaces for innovation that competitors aren't addressing.
- JTBD companies: Intercom, Basecamp, and Lemonade all cite JTBD as strategic foundation
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Slide 22
Competing Through Ecosystems
- Ecosystem Strategy
- Ron Adner's ecosystem strategy asks: what coalition of partners must be mobilized for a value proposition to succeed? Innovators often fail not because their core technology fails but because the surrounding ecosystem — complementors, standards, infrastructure — doesn't develop fast enough.
- Ecosystem competition is increasingly the dominant form of competitive rivalry. Apple's App Store, Amazon Web Services, and Microsoft Azure don't just compete firm-to-firm — they compete ecosystem-to-ecosystem. The ecosystem that attracts the most complementors typically wins.
- Orchestrator vs. participant — firms choose to lead or join ecosystems
- Keystone species — ecosystem orchestrators must maintain ecosystem health, not just extract value
- Complementor management — strategy for attracting, managing, and occasionally displacing complementors
- Ecosystem governance — rules, standards, and access that shape complementor behavior
- Ecosystem disruption — how new ecosystems replace old ones
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Slide 23
M&A as Strategy
- Mergers & Acquisitions
- M&A is the most expensive strategic decision most companies make — and the one with the worst track record. Meta-analyses consistently find that 50–70% of acquisitions destroy shareholder value. The winners are typically the acquired company's shareholders; acquirer shareholders usually break even or lose.
- Why does M&A fail? Overpayment driven by deal momentum, overestimated synergies, culture clash, integration complexity, and the winner's curse. When bidding for unique assets, the winner is often the most overoptimistic bidder.
- M&A Rationale (When It Works)
- Access to capabilities or technology faster than organic development
- Geographic expansion into markets where organic entry would be slow
- Eliminating a competitor to improve industry structure
- Scale economies in operations or cost structures
- Diversification into adjacencies with genuine synergy
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Slide 24
Competing in Turbulent Markets
- Dynamic Capabilities
- David Teece's dynamic capabilities framework asks: in rapidly changing environments, sustainable advantage comes not from static resources but from the ability to continuously sense opportunities, seize them, and reconfigure resources in response. This is "meta-advantage."
- Static competitive advantage is increasingly fragile. The half-life of S&P 500 membership has shrunk from 90 years in 1935 to about 15 years today. Strategy must build the capacity to continuously create new advantages as existing ones erode.
- Three Dynamic Capabilities
- Sensing — identifying and assessing opportunities in the environment before competitors. Market intelligence, technology scanning, customer observation.
- Seizing — mobilizing resources to capture value from opportunities. Rapid decision-making, investment commitment, business model design.
- Reconfiguring — continuously renewing assets and capabilities to sustain advantage. Organizational learning, asset divestment and acquisition, transformation.
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Slide 25
Strategy Beyond Profit
- Purpose and Strategy
- Michael Porter and Mark Kramer's Creating Shared Value (CSV) framework argues that the most sustainable competitive strategies align business value creation with social progress. Companies that solve societal problems with profitable business models build advantages that are difficult to separate from their social mission.
- ESG (Environmental, Social, Governance) strategy is increasingly not a reputational add-on but a risk management framework: stranded carbon assets, supply chain labor risks, governance failures, and regulatory exposure are all material business risks that appear in strategy.
- Novo Nordisk's diabetes focus aligns with solving one of world's largest disease burdens
- Patagonia's "don't buy our jacket" campaign built brand loyalty through authenticity
- Interface Carpet's Mission Zero made sustainability a genuine competitive differentiator
- Unilever's Sustainable Living brands grew 69% faster than the rest of the portfolio
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Slide 26
When Strategy Goes Wrong
- Strategy Failures
- Strategic Drift
- Organizations incrementally adapt to their environment without making fundamental changes — accumulating small decisions that cumulatively misalign the firm with competitive reality. Kodak, Blockbuster, Nokia, Sears.
- Overextension
- Firms stretch beyond core competencies into markets where they have no advantage. Diversification beyond adjacencies typically destroys value. Many big acquisitions fail because the acquirer doesn't understand the acquired business.
- Execution Failure
- Good strategy poorly executed. Disconnect between strategy formulation and operational capability. Lack of clear priorities, inadequate resources, incentive misalignment, organizational resistance.
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Slide 27
Strategy Under Uncertainty
- Scenario Planning
- Shell's scenario planning methodology, developed in the 1970s after the oil shocks, prepares organizations for multiple possible futures rather than forecasting a single expected future. The scenario planner's goal is not to predict but to make organizations more robust to surprise.
- Robust strategy performs acceptably across multiple scenarios — not optimal in any single future but avoiding catastrophe in all realistic ones. It identifies hedging actions available now, signposts to watch, and trigger points for major shifts.
- Identify driving forces: social, technological, economic, environmental, political
- Select two critical uncertainties that will most determine industry structure
- Build 2×2 matrix of four distinct plausible scenarios
- Test current strategy against each scenario: where is it robust? fragile?
- Identify early warning signals that discriminate between scenarios
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Slide 28
Doing Strategy: The Process
- Strategy in Practice
- Analysis
- External: industry structure (Five Forces), macro environment (PESTLE), competitive dynamics. Internal: resource audit, value chain analysis, core competency mapping. Synthesis: SWOT.
- Choice
- Generate strategic options. Evaluate against criteria (value creation, feasibility, risk). Make the choice — explicitly, with trade-offs named. Commit resources to signal seriousness.
- Implementation
- Align structure, incentives, talent, culture, and processes with strategic choices. Communicate clearly to the organization. Monitor with strategy maps and balanced scorecards. Adapt continuously.
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Slide 29
Essential Strategy Reading
- The Canon
- Competitive Strategy — Porter (1980): Five Forces, generic strategies, value chain
- The Innovator's Dilemma — Christensen (1997): disruptive innovation model
- Good to Great — Collins (2001): what distinguishes great companies from good ones
- Blue Ocean Strategy — Kim & Mauborgne (2005): value innovation and market creation
- Playing to Win — Lafley & Martin (2013): the strategy cascade and choice-making
- Competing Against Luck — Christensen (2016): Jobs To Be Done framework
- Platform Revolution — Parker, Van Alstyne & Choudary (2016): platform business models
- The Wide Lens — Adner (2012): ecosystem strategy and innovation success
- The Art of War — Sun Tzu: strategic principles that remain relevant 2,500 years later
- HBR on Strategy: curated Porter, Christensen, Kim & Mauborgne classics
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Slide 30
Strategy Is the
Deliberate Choice
to Be Different
- The Core Insight
- Operational excellence — doing the same things better — improves performance but doesn't create durable advantage. Strategy — doing different things, or doing things differently — is the only source of sustainable superiority. Without trade-offs, there is no strategy.
- PorterChristensenPlatformBlue OceanEcosystem
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