What Do We Mean by Strategy?
A company’s strategy is a set of coordinated managerial actions designed to outperform
competitors and achieve superior, long-term profitability. Strategy focuses not on short-term
success but on building lasting competitive strength. It involves key decisions about market
positioning, customer attraction, competition, performance targets, growth opportunities, and
responses to changing market and economic conditions. Companies can compete through cost
leadership, differentiation, focus, or global versus local market choices, depending on their
resources and capabilities.
Core Concept of Strategy
Strategy is about competing differently, doing things competitors do not do or cannot do. The goal
is to create a sustainable competitive advantage rather than temporary success.
Five Generic Competitive Strategies
1. Low-Cost Provider Strategy:
The company aims to become the lowest-cost producer in the industry and offer products at
lower prices than competitors.
How it works:
• Large-scale operations (economies of scale)
• Tight cost control and efficiency
• Simplified product features
• Efficient supply chain and logistics
Why it succeeds:
• Attracts price-sensitive customers
• Makes it hard for competitors to match prices
• Can still earn profit even at low prices
Examples: Walmart, Southwest Airlines
2. Broad Differentiation Strategy:
The company offers unique products or services that many customers value and are willing to
pay extra for.
How it works:
• Strong branding
• Innovation and design
• High quality or superior performance
• Excellent customer service
Why it succeeds:
• Builds brand loyalty
• Reduces price competition
• Allows premium pricing
Examples: Apple (innovation), BMW (performance), Rolex (prestige)
3. Focused Low-Cost Strategy:
The company targets a specific niche market and becomes the lowest-cost provider within that
niche.
How it works:
• Serves a narrow group of customers
• Keeps costs low by limiting product variety
• Efficient operations focused on niche needs
Why it succeeds:
• Strong position in a small segment
• Less direct competition from large firms
• Appeals to budget-conscious niche buyers
Examples: IKEA, private-label supermarket brands
4. Focused Differentiation Strategy:
The company serves a narrow market segment but offers highly specialized or customized
products.
How it works:
• Deep understanding of niche customer needs
• Specialized design, features, or services
• Strong emotional or lifestyle branding
Why it succeeds:
• Customers are willing to pay premium prices
• Strong customer loyalty
• Difficult for rivals to copy specialization
Examples: Lululemon (yoga apparel), Tesla (electric vehicles), LinkedIn (professional
networking)
5. Best-Cost Provider Strategy:
The company offers better value for money by combining reasonable prices with good
quality and features.
How it works:
• Balances cost efficiency and differentiation
• Offers attractive design and quality at mid-range prices
• Targets value-conscious customers
Why it succeeds:
• Appeals to a wide customer base
• Competes against both low-cost and premium brands
• Strong value perception
Examples: Target
Sustainable advantage depends largely on unique capabilities and expertise that competitors
find difficult to imitate.
Why a Company’s Strategy Evolves Over Time
A company’s competitive advantage is rarely permanent because market conditions constantly
change. Advances in technology, shifting customer preferences, new competitors, and economic
changes force firms to adjust their strategies. Most strategy changes happen gradually through
small improvements, but major strategic shifts may be necessary during industry disruptions.
Therefore, strategy-making is a continuous and ongoing process, not a one-time decision.
Strategy and Ethics: Passing the Test of Moral Scrutiny
A company’s strategy must be ethical as well as legal. Ethical strategies avoid deceit, unfair
practices, harm to stakeholders, and environmental damage. Unethical behavior can seriously
damage a company’s reputation, reduce customer trust, demotivate employees, and lead to
financial losses. Strong ethical leadership ensures integrity, accountability, and long-term
sustainability.
A Company’s Strategy and Its Business Model
A business model explains how a company creates value and earns profits. It consists of two
key elements:
• Customer Value Proposition (V − P): The value customers receive compared to the
price they pay.
• Profit Formula (P − C): The profit earned after covering costs.
A strong business model delivers high customer value efficiently and profitably. Examples
include Gillette’s razor-and-blade model, McDonald’s fast-food model, and Rolls-Royce’s
“power-by-the-hour” model.
What Makes a Strategy a Winner?
A winning strategy must pass the Fit Test:
• External Fit: Aligns with industry conditions and market trends.
• Internal Fit: Matches the firm’s resources and capabilities.
• Dynamic Fit: Adapts effectively to changing conditions over time.
Poor strategic fit leads to weak performance and increases the risk of failure.
Good Strategy + Good Strategy Execution = Good Management
Good management is reflected in both well-designed strategies and effective execution.
Companies with clear strategic direction and strong implementation perform better in the long run.
In contrast, poor strategy or weak execution results in underperformance and long-term business
risk.