PART 1 Strategy Analysis The logic of Part 1 is the logic of the strategy analyst. In terms of the systemic model in Chapter 2 (shown in full in Figure 2.3), the analyst concentrates on the basic elements of the strategy map – as shown in Figure 2.1. This is where the analyst makes a massive contribution. The analyst assesses the nature of the economic, market and competitive environment, identifies and assesses major strategy options, and is a prime contributor to the basic thinking behind the ‘theory of the business’ which is captured in the strategy statements and the business model. The analyst’s role is cast around the central ideas of competitive advantage – how to be different and yet be successful. The analyst is obsessed with data, with calculations about trade-offs and with testing out alternative ideas and hypotheses. But the analyst also has to be concerned with qualitative data because not everything can be captured by numbers. Alternatives are measured in terms of returns versus risk and many of the judgements to be made have to incorporate shrewd assessment alongside objective data. Both the data and the judgements are informed by strong theoretical frameworks and these are the subject of this part of the book. Chapters 3 and 4 taken together present an outline of the basic economic principles that are required in order to understand the detail of strategic management. Economics is a very broad subject, ranging from microeconomics (the organization of markets and the behaviour of firms and individuals) through macroeconomics (the study of whole economies and the determinants of national income, growth etc.) to international trade (the exchange of goods and services by people in different economies). The basic economics in these chapters represent a bare minimum of economics sufficient to gain an understanding of strategic management. For readers who really want to read further in economics we recommend reading one of the many excellent economics textbooks. At this stage in the book we construct the fundamental notion that what underpins all strategy analysis is competitive advantage. This is the keystone in the architecture of strategy analysis that holds together all the data, discussion and supporting analyses. It is a powerful intellectual construct that is used universally. The idea of competitive advantage is gained through the denial of perfect competition, the economist’s competitive ideal explained in Chapter 3. Whereas perfect competition leaves no room for individual firms and their strategies, the whole idea of strategy is built on the presence of imperfections in markets. This starting point for strategy is explained in Chapter 3. The first two parts concentrate on the economic underpinnings of strategy and on the analysis of industries and competition. This takes 55
9780077126919_C03.indd
55
7/15/10
4:36:05 PM