Strategy is about deciding where you want to go and how you mean to get there. A strategy is a declaration of intent: ‘This is what we want to do and this is how we intend to do it.’ Strategies define longer-term goals but they are more concerned with how those goals should be achieved. Strategy is the means to create value. A good strategy is one that works, one that guides purposeful action to deliver the required result.
The concept of strategy is based on three subsidiary concepts: competitive advantage, distinctive capabilities and strategic fit.
Competitive advantage, Porter asserts, arises out of a firm creating value for its customers. To achieve it, firms select markets in which they can excel and present a moving target to their competitors by continually improving their position.
Porter emphasized the importance of: differentiation, which consists of offering a product or service ‘that is perceived industry-wise as being unique’; and focus – seeing a particular buyer group or product market ‘more effectively or efficiently than competitors who compete more broadly’. He then developed his well-known framework of three generic strategies that organizations can use to gain competitive advantage. These are:
l innovation – being the unique producer;
l quality – delivering high-quality goods and services to customers;
l cost leadership – the planned result of policies aimed at ‘managing away expense’.
A distinctive capability or competence can be described as an important feature that in Quinn’s (1980) phrase ‘confers superiority on the organization’. Kay extends this definition by emphasizing that there is a difference between distinctive capabilities and reproducible capabilities. Distinctive capabilities are those characteristics that cannot be replicated by competitors, or can only be imitated with great difficulty. Reproducible capabilities are those that can be bought or created by any company with reasonable management skills, dili-gence and financial resources. Most technical capabilities are reproducible.
Distinctive capabilities or core competences describe what the organi-zation is specially or uniquely capable of doing. They are what the company does particularly well in comparison with its competitors. Key capabilities can exist in such areas as technology, innovation, marketing, delivering quality, and making good use of human and financial resources. If a company is aware of what its distinctive capabilities are, it can concentrate on using and developing them without diverting effort into less-rewarding activities. It can be argued that the most distinctive capability of all is that represented by the knowledge, skills, expertise and commitment of the employees of the organization.
The concept of strategic fit states that to maximize competitive advantage a firm must match its capabilities and resources to the opportunities available in the external environment. As Hofer and Schendel (1986) conclude: ‘A critical aspect of top management’s work today involves matching organi-zational competences (internal resources and skills) with the opportunities and risks created by environmental change in ways that will be both effective and efficient over the time such resources will be deployed.’