Chapter 4.

Kinds of Strategy
Xavier Gimbert

Previous chapters have presented the history of strategy, its key concepts, its workings
and its analysis and planning. This chapter is strongly linked to all of these facets and
indeed is a consequence of them.
First, as noted earlier, strategy can be defined as a way in which a company may
compete and confer upon it a sustainable competitive advantage. Put baldly, it enables a
firm to be better than its competitors in some key aspect (at least in the view of enough
customers to ensure the companys survival).
As has been said, a company begins defining its mission based upon its values. The
mission is key in defining what the firm does. It therefore plays a key strategic role: the
company begins to differentiate itself from its competitors through its mission. Thus a
different mission (for example, in the case of Swatch when the firm was set up) may
confer a competitive advantage which is the whole purpose of the strategy. Indeed,
the mission must contain part of the strategy. If we follow Abell1s concept of strategy,
we must also specify who the firm targets (market segments), the need it is trying to
satisfy and the way in which it does so (technology and/or know-how). These are all
key aspects in drawing up the strategy, as we shall see further on.
The analytical tools presented in the previous chapter examine strategy from different
yet complementary angles. Using these models, managers obtain sufficient information
for decision-making and planning purposes.
Planning can be defined as the process by which one decides the strategy by
undertaking an analysis (of both the setting and the companys inner workings) and
making an evaluation of the options that arise therefrom.
This chapter delves into the concept of strategy, beginning with a presentation of the
various levels of strategy in a firm. The central sections cover the subject of competitive
advantage initially through generic strategies and then more specifically through the
description of the dimensions of strategy and afterwards, the strategy groups these
dimensions may form. The penultimate section covers the various visions and ways of
implementing them in the planning and design of strategy. The chapter ends with
conclusions that do not merely sum up these reflections but also link them with the final
chapters in this collection.

1) Strategic levels: Corporate, Business, Functional

There are different strategic levels2. Although they are all important for the company
future, each of them takes a different perspective, which leads to different kinds of

Abell, Derek F. (1980) Defining the business: the starting point of strategic planning. Englewood Cliffs,
N.J.: Prentice Hall
2

Johnson, G.; Scholes K.; Whittington R. (2006) Exploring corporate strategy. Pearson Education.

decisions given that they concern completely different problems3. As one can see in
Figure 1, these strategic levels are: Corporate, Business, Functional.

Figure 1: The three strategic levels

If the company carries out just one activity, it will only have business and functional
levels. The mission and the vision vary between a firms businesses (if the company is a
diversified one). The process of diversification, analysis of the setting in its various
aspects (macro, sector, competition and market) is carried out by business.
Nevertheless, in the case of companies that have diversified and have different
businesses, all of these processes, concepts and analyses may also adopt a cross-cutting
perspective, which gives rise to corporate strategy.

1.1) Corporate strategy

Basically, corporate strategy affects four main groups of decisions.
Way of doing things. Corporate strategy defines a way of doing things that should be
adhered to in the remaining levels. For example, if a corporation decides to follow a
low-cost strategy, these must form part of all the business unit strategies. This is the
case with the Easy Group, with its low-cost businesses, which include EasyJet, EasyCar
and EasyHotel.
Deciding the business the group should undertake. A second key area is deciding
with businesses the group should undertake those it should enter and those it should
leave. Only those individuals with an overview of the organisation can evaluate: (1) the
expected profitability of each of its businesses over the medium and long terms; (2)
what each business contributes to the whole; (3) synergies between businesses.
Investment in resources. A group exists because of owners and shareholders own a
large part of the companies making it up. Accordingly, it is the corporate interest to
boost the profitability of the group as a whole. Only those at this level can decided in
how the groups resources should be invested in the light of the profitability of each
activity and what it contributes to the others. Taking this overall estimate as a starting
point, the Corporate level must decide how to allocate its resources (financial, staff,
3

Grant, Robert M. (2007) Contemporary Strategy Analysis. Blackwell Publishers.

technical, know-how, tangible and intangible assets) between them. Indeed, it may be
that the Corporate level decides that all the profits and/or resources (staff, assets, etc.) of
one business should be earmarked for one or more of the others.
Creating synergy. A fourth area of corporate responsibility is to ensure that the group
is worth more than the sum of its parts. A group that is only worth the sum of its
individual businesses has failed as a group. Business synergy is the key to ensuring that
the whole is worth more than the sum of its components. This synergy may arise from
two complementary sources.
The first source is when the functional level is looked at from the corporate level. Here,
we discover each of the functional levels is repeated in each business. This leads the
company to ask itself whether a cross-cutting vision of a functional area contributes
something. The answer may well be that it does. For example, in the case of
administration and management, a single department may be able to provide services
for all the groups business areas. If so, significant savings may be made by cutting out
duplicate services and centralising these for all the companys business activities. Thus
a single manager may provide these services, ensuring the same perspective and
approach is applied to all business areas (making minor adaptations where necessary).
This cross-cutting vision may help the firm perform a function better. For example, in
the case of human resources (staff management), a unified vision may help the group
discover individuals with a talent for business but who have little chance of promotion
in the firms where they work because there are no posts available. These people can be
transferred to another business in the group where there are suitable job openings. When
it comes to finance, it may be that one firm lacks liquidity while another is awash with
cash, enabling the second to lend to the first (thus keeping the interest paid within the
group instead of enriching a bank).
By taking a cross-cutting approach, we may also split the budgetary allocation between
the groups businesses, thus saving money. If this is possible, the group is making a
shift to a corporate functional area. This is because the chosen function is now carried
out for the group business as a whole. This option is not always viable but at the very
least it should be considered in the light of the circumstances and possible barriers to
co-ordination.
A second way of obtaining synergy in a group is through having related businesses. If a
corporation comprises similar businesses it is because: kindred technology and/or
knowledge employed in them or because their customers are either the same or alike.
Thus when the group begins a business, it does not do so from zero but rather based on
its existing knowledge. In developing and maintaining the business, there is always a
flow of knowledge among the groups businesses, which strengthen one another. The
various forms of diversification that emerge from the myriad relations between
businesses are based on the different kinds of synergy that may be achieved (see Figure
2, which depicts four kinds of diversification).4

Ansoff, Igor H. (1965) Corporate Strategy: An analytic approach to business policy for growth and
expansion. New York (USA): McGraw-Hill.

Figure 2: The different kinds of diversification. Source: Igor Ansoff

In the case of horizontal diversification, the businesses have the same customers (even
though they satisfy different customer needs). This is the case of a chain of
hypermarkets that also offers its customers a travel agency. This kind of diversification
offers considerable synergy in marketing and sales activities, given that the customers
are the same in all instances. The groups knowledge of its customers serves all of its
businesses and facilitates customer loyalty programmes.
In the case of vertical integration, the company turns the customer or supplier into a
new business. This for example would be the case of a chain of hypermarkets
purchasing dairy products from one of its suppliers. In this case, the synergies are
obvious. However, vertical integration has to take into account the risk taken by the
corporation in having all its businesses focused on the same end customer. For instance,
a clothing manufacturer with its own chain of shops would find both its manufacturing
and distribution business hit if Winter sales were slack.
By definition, conglomerate diversification is the only kind of diversification that does
not have synergies whether in terms of technology/knowledge or in similarity between
customers. This may be the case of a company that has one line of business in
foodstuffs and another in property development.
Concentric diversification offers some synergy either because: (1) clients of the new
business are similar (but not the same otherwise this would be a case of horizontal
diversification), or (2) there is a certain similarity in technology/knowledge. In both
cases, an example might be a manufacturer of cars and motorbikes.

1.2) Business strategy

The second strategic level (the first, if the company is not diversified or only has one
business activity) is the business level. Before, we spoke of the Easy group, with its
EasyJet, EasyCar and EasyHotel companies, each of which has its own business
strategy despite the clear synergies and cross-business between them. The airline sector
(EasyJet), car hire (EasyCar) and hotels (EasyHotel) are very different businesses. Each

company in the group is aimed at customers with different needs, faces different
competitors, has different suppliers and so on. One can say exactly the same of a
hypermarket chain offering travel agency services to its customers or of the supplier of
dairy products.
If each of these businesses has different customers, competitors, and suppliers, clearly
the strategy of each will follow a different analysis and planning process, yielding its
own end result and leading to a different competitive position in each line of business.
The overriding purpose of the business strategy is to give the company a competitive
advantage in the sector and as noted earlier to ensure the firm has an edge over its
competitors in some key respect (or at least a sufficient edge to ensure the companys
survival). The following sections in this chapter examine these aspects of business
strategy in greater depth.

1.3) Functional strategy

Just as each business within the group of companies must draw up its own strategy,
each functional area (Marketing, Operations, Finance, etc.) in the business must also
come up with its own strategies. The perspective of a functional area is utterly different
from that of a corporate or business perspective. The corporate level, as we have seen,
reflects on and decides businesses. The business level analyses and decides how to
obtain competitive advantage in a given sector and how to make sure that the firm
delivers greater customer satisfaction than its competitors. The functional level has a
much more specific, focused vision.
For example, in the marketing area, the focus in mainly on the market, knowing the
companys customers and their needs, as well as the messages and positioning the firm
wants to convey. As one would expect, the Finance Department focuses on financial
matters and the Human Resourced Department on staff matters. Once again, we can see
how the various strategic levels give different visions and thus lead to different kinds of
strategic decisions. They are strategic decisions because they determine the companys
future because no matter how good a firms business strategy is, no company can
survive if its marketing, HR and financial strategies are ineffective. One reason for this
(among others) is that the business strategy is put into effect through these functional
strategies.
Clearly, the various functional strategies must be in keeping with the business strategy
and thus they must be consistent with one another. If this consistency is lacking, one
may find that good individual functional strategies cancel out and lead to business
failure. For example, a company strategy that stresses cost-cutting and product
standardisation is wholly at odds with a marketing strategy that seeks elitist
differentiation.

2) Competitive Advantage and generic strategies

All firms in a given sector enjoy one or more competitive advantages. This is because
they could not survive for very long without such an advantage. Accordingly, a
company must establish and maintain a long-term competitive advantage and hence is
one of the main duties of the firms management.

A further difficultly is that competitive advantage is not an absolute concept but rather a
relative one the firm has to be better than its rivals. This is important because being
good at something is not enough to thrive one has to be better than the rest of the
pack. This is no easy task given that a firms rivals are all seeking their competitive
advantages of their own.
Various competitors may adopt the same strategy. Usually, these firms target a market
that is sufficiently big for each of them to capture enough customers to survive.
However, even in this case, the competition continually tries to undermine any given
firms competitive advantage. Put another way, competitive advantage has a death date.
One has to be ever-watchful lest one lose a competitive advantage and have a Plan But
to come up with another one should it be needed.
As we shall see, there are many kinds of competitive advantage. For the sake of
simplicity, we have summarised them under two broad heads.

Figure 3. Generic strategies. Source: Michael Porter

2.1) Differentiation strategy

The first kind of competitive advantage is when a company offers a better feature than
the firms rivals and the customer both perceives and values this edge. The firm
becomes exclusive through its competitive advantage, which in turn leads to a
differentiation strategy (one of Porters three generic strategies 5 see Figure 3). A firm
needs to meet both requisites if it is to differentiate its products and/or services. One
should note that the company must have an edge over its competitors in one or more
key aspects (for example, quality, technology, brand) that customers both perceive and
prize. If a company is really better than the rest but is not seen as such by its customers,
it will neither have differentiation nor a competitive advantage. Marketing plays a vital
role here in: (1) discovering what customers want and value; (2) ensuring customers are
made fully aware of how the firms products meet customers needs. Yet it may also be
the case that the company is perceived by customers as being the best in its field in one
or more aspects (service, design, innovation, etc.) when this is not the case. Here, the
firm will win most customers but find it hard to keep them when it fails to live up to
their expectations.
5

Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York:
Free Press.

The differentiation strategy usually implies a risk for the company given that obtaining
a competitive advantage (quality, technology, brand, service, innovation, etc.), usually
requires investment, without which the firm cannot achieve the desired differentiation.
If such investment does not deliver competitive advantage, the firm has incurred
additional costs to no purpose. For example, one can invest in R&D to acquire a new
technology, in operations to boost quality or in marketing to boost brand knowledge and
positioning but there is no guarantee that it will pay off.
Logically, if this investment is successful, the company will raise the prices of its
products and/or services to reflect customers appreciation of the improvements made.
Someone who buys an Audi or a Mercedes is willing to pay more for a car because the
brand conveys better technology, quality and design. This higher price must cover the
investment made by the differentiated company and provide a bigger profit margin.
However, management always has to weigh price against higher sales in order to
maximise the return on the investment made to differentiate the firm.

2.2) Cost leadership strategy

Not all companies want to differentiate themselves. One reason this is so among
others is that not all customers want this differentiation, can value it or pay for it.
Firms not seeking differentiation pursue a strategy of being a good as the rest but
cheaper. The competitive advantage here is low cost and the generic strategy is cost
leadership.
It is important to note that the competitive advantage is never low cost. The price comes
after a strategic decision has been taken once a cost advantage has been attained. Any
firm may set low prices but only the cost leader (the firm with the lowest costs in the
sector) can maintain them over the long term. However, the cost leader may decide not
to opt for rock-bottom prices since its profit margins are vital for strengthening the
firms competitive advantage. Having the lowest costs in the sector does not force one
to choose low prices. One of the advantages enjoyed by the cost leader is that it is the
only firm that can decide the lowest price over the long term. There are various sources
of low costs.
Low costs for due to structural factors. This is the best source of low costs given that
it provides a firm with a long-term advantage and characteristic (as we shall see, other
sources of low costs do not meet these premises). Economies of scale fall under this
head. Here, the bigger the company, the smaller costs per unit are. Economies of scale
may be found in all of a firms activities (R&D, operations, logistics, marketing, etc.).
For example, Coca-Cola is the beverage company that spends most on advertising.
However, it is the company that spends least as a proportion of turnover, given that its
large advertising budget is spread over a much bigger output than its competitors.
When the fall in unit cost is due to cumulative volume, we talk of the learning curve
In this case, the firm does not have lower costs because it is very large (economies of
scale) but rather because it has learnt a great deal after years in the business and thus
disposes of greater know-how. Specialisation or division of labour also boosts the
efficiency of the firms operations, as do standardisation, redesigning products or
machinery, process innovation, new materials all factors that improve as the
company gains experience. The Boston Consulting Group (BCG) related how the
success achieved by Japanese firms in the motorcycle sector (such as Honda) was due to

the reduction in costs made possible by their gradual acquisition of know-how.

Examples of the same phenomenon can be found in all sectors.
Having ones own, patented technology may also confer low structural costs (as may
better plant design). The beginning of this chapter shows that the pooling of activities
by diversified companies may also lower costs.
Low costs through execution. A second source of low costs may arise through
execution. These sources are not as good as structural ones, given that they are not
inherent characteristics of the company as in the former case and are not of such a longterm nature because they stem from quality management. Firms having a better
management team and staff can negotiate more effectively with suppliers and customers
and can strike up good relations with other stakeholders (banks, government bodies,
etc.). However, when these managers and/or staff leave the firm, the advantage is lost.
That is why one of the conditions found in many take-overs is that key managers in the
acquired company stay with the firm.
Low costs due to external causes. Last, external causes constitute the worst source of
low costs. If a firm has lower costs because of exchange rates or because of temporarily
cheaper supplies (oil and other raw materials), one cannot term this an advantage
because it is not owned or controlled by the firm. An unfavourable shift in exchange
rates or raw material prices may prove devastating.

2.3) Specialisation strategy

At the beginning of this section, we noted that competitive advantage can be conferred
in two ways: (1) differentiation (exclusiveness perceived by customers); (2) cost
leadership (low-cost position). However, as was also noted (see Figure 3), there are
three generic strategies or paths a firm may follow.
The most important feature of the third generic strategy is that if a company does not
achieve a competitive advantage based on differentiation or costs, it may still do so in
terms through its choice of strategic objective. The specialisation strategy involves the
firm focusing on a market segment (whether geographical or in terms of the needs met)
instead of catering to the whole sector.
Newspapers provide a good example of this strategy. There are national newspapers
furnishing a wide spectrum of information (international, national, political, sport,
business, etc.). However, there are also local newspapers and papers catering to sports
fans and to businessmen.
The advantage of the last two kinds of paper lies in their specialisation. Such firms
target a niche market, leaving the rest to other companies. A local newspaper targets
those consumers who set greater store by the information on their city or region than
they do on that found in a national newspaper. In the latter, one finds better information
on international affairs, thematic articles and the like but less local news. A sports
newspaper wins customers whose thirst for information on players, matches and so on is
not slaked by the national papers.
Thus the advantage conferred by specialisation rests on concentrating on part of the
sector, knowing niche needs inside out and thus satisfying its customers much better
than firms catering to the whole sector.

2.4) Caught in the middle

Achieving all three strategies at the same time is not impossible but it is fiendishly
difficult. It is only human to want to be best at everything but it is hard to please
everyone and it poses an obvious risk. The danger arises when the three strategies are
interrelated as shown in Figure 4. The diagram shows the case of a company that has
low costs and also wants to achieve differentiation. The peril is that the firms costs will
rise as it seeks to achieve differentiation. If the firm fails to achieve differentiation, it
will have lost its low-cost advantage for nothing in return.

Figure 4: The interrelationship between the three generic strategies

Michael Porter calls this situation Caught in the middle in referring to firms that want
to pursue all of the generic strategies but fail to achieve any of them. Companies that
decided to differentiate themselves win out in taking these strategic paths, as do those
that cut costs to the bone or which opt for targeting niche markets. The firms that try all
three have the odds stacked against them but that it not to say that it is impossible.
Many years ago, IBM dominated the market and led both in terms of differentiation and
costs. However, the rules of the game changed and its sales nose-dived. In fact, one of
the ways to achieve all of the generic strategies is when Figure 4 does not apply and one
can achieve differentiation without any significant increase in costs. When
differentiation is based on a good idea, the cost of implementation may be close to zero.
An example here is Priceline.com, a business based on an idea patented by its inventor,
Jay Walker. In principle, the idea was not so novel it simply involves the customer
setting the price in a reverse auction. This concept turned Priceline.com into a business
valued at US $20,000 million when it was floated on the stock exchange in 1999. The
onset of the crisis in 2008 halved this value in 2009. The patented idea allowed Walker
to strongly differentiate his firm at very little cost.
Generic strategies reveal three broad strategic paths. In some cases, it is clear which
strategy a given firm follows. Audi, Mercedes and BMW follow the differentiation
strategy, whereas the Indian car-maker Tata turns out very cheap vehicles. Ferrari
specialises in luxury sports vehicles.
However, with other companies one cannot say which of the three paths is taken. This
occurs in the Benetton clothing company and in Swatch (watches). They have
differentiating aspects but they also enjoy some cost advantages but they are not firms

caught in the middle. This shows that generic strategies are a good point to start because
they reveal the main strategic choices but the drawback is indicated by their name
they are generic. This explains the need for the strategic dimensions explored in the
following section.

3) Strategic dimensions
When it comes to analysis and reflection, the more strategic tools and concepts a
company has at its disposal, the better. This is evidenced when one moves from generic
strategy to strategic dimensions and hence to the analysis of strategic groups. It is a step
that adds depth, detail, clarity and perspective to the insights provided by generic
strategies. In fact, the step consists of dissecting the strategy to take the analysis further.
The initial idea might be to use the three generic strategies to split the sector into three
large groups of firms, each of which flows from the generic strategies. We can then
observe the differences between them to see how they compete with one another.
3.1) The strategic dimensions of differentiation
Not all firms following the differentiation strategy are the same, compete in the same
way or attain the same results. The same can be said of firms competing on price or
those seeking specialisation.
Not all companies choosing differentiation do so in the same way because they compete
in different ways and adopt different strategies. As a result, one way to understand these
differences is to consider their competitive strategy that is to say, how they compete.
We then observe that there are various ways of drawing up a differentiation strategy in
any given sector. There may be firms that offer greater quality, others an outstanding
service, yet others highly innovative products and services. All these paths lead to
differentiation even though they are completely different ones. The step we have taken
here is to move from generic strategies in the case of differentiation to consider strategic
dimensions. Quality, service, design and innovation are strategic dimensions (in this
case, stemming from the generic differentiation strategy). Clearly, a firm cannot rely on
just one strategic dimension but rather has to base its approach on a set of dimensions.
Thinking of Apple, one can say that the company competes through innovation, based
on design and technology, all of which is supported through the brand. These set of
interlinked dimensions explains Apples strategy.
3.2) The strategic dimensions of low costs
The same reflection on companies adopting a generic differentiation strategy can also be
made for those firms following a cost-based strategy. Not all companies taking the latter
approach do so in the same way and this is also because they compete in various ways
and through diverse strategies. This diversity should also be understood through the
firms competitive strategies (that is to say, how they compete). In a given sector, there
may be companies that have very low cost through economies of scale (large firms)
while others use the know-how gained from a long track record in the sector. Yet other
firms may draw on their own, patented technology to achieve the same. Once again,
these three paths lead to a cost-based strategy but take different routes. Economies of
scale, the learning curve, and technology are strategic dimensions (in this case,

10

stemming from the generic cost strategy), as too are the other sources of costs
mentioned earlier (pooling activities, plant design, better execution and the many
external sources of cost). In this case too, a company may compete through various cost
dimensions. For example, being a large firm (economies of scale) does not rule out a
long track-record in the sector (learning curve) or owning a technology that is better
than that of its competitors. For example, a firm may compete on costs through all three
strategic dimensions. Figure 5 shows this step from generic strategy to strategic
dimensions.

Figure 5. From generic strategies to strategic dimensions

3.3) The strategic dimensions of specialisation
The foregoing reflections also apply to the third generic strategy. Not all firms
specialise in the same way. As noted, some specialise by market segments (needs),
others by geographical areas. Within each of these two main kinds of specialisation, the
forms taken vary, depending on the segment (for example, a sports paper or a business
paper) or by region. Under each of these broad heads, there are firms that bend towards
a cost strategy, while others follow a cost strategy or one based on differentiation.
Likewise, we have moved from a generic strategy (specialisation) to the means (i.e.
strategic dimensions) of achieving it. A low-cost sports paper has nothing in common
with a local paper that focuses on a region. It is only when we think in terms of strategic
dimensions and not of terms of generic strategies that we can see this difference.
3.4) Other strategic dimensions
So far, we have seen the strategic dimensions involved in generic strategies. Within this
framework, a firm can obtain a competitive advantage if it is bigger than its competitors.
A company that has higher quality, economies of scale or is more specialised in a

11

market segment has a competitive advantage (if this dimension is important in its
sector).
Nevertheless, as one can see in Figure 5, there is a fourth group of strategic dimensions
that do not stem from the three generic strategies and thus do not confer a direct
competitive advantage. However, these dimensions are important because they can help
in achieving the other dimensions.
This fourth group covers dimensions that give the firm scope for strategic manoeuvre. A
company that decides to forge a strategic alliance does not automatically obtain a
competitive advantage by doing so. Rather, the alliance helps the company get such an
advantage (technology, if the alliance is research-based, better distribution if it is in the
logistics field, and so on). Yet this does not constitute a competitive advantage by itself.
The same applies if one considers the other dimensions that provide this strategic scope
for manoeuvre for example, vertical integration, sound financial leverage. Such
factors help a firm achieve a competitive advantage but are not competitive advantages
in themselves.
Taking this step from generic strategies to strategic dimensions allows one to
understand all companies. We thus now possess a finer-grained view of strategy. This
allows one to grasp that while firms may be very clear on what their strategy is, there is
always the risk that mixing the strategic dimensions arising from various generic
strategies may lead to the company being caught in the middle.
For example, consider the differentiation dimensions defined above as a possible
strategy for Apple (that is, innovation based on design and technology that is supported
by the brand). Note too that Apple is a very large company which thus enjoys
economies of scale. It has also been in the sector for a long time and has thus amassed
vast know-how. To sum up, one can say that Apple pursues a strategy comprising the
following dimensions: innovation; design; technology; brand; economies of scale;
know-how. It also has a mixture of differentiation and cost dimensions and so it is hard
to place the company in relation to the three generic strategies. Although the firm is bent
on differentiation, it is also clear that the cost dimensions help in the quest for this
advantage. That is because Apples bigger profit margins allow it to spend more on
innovation, design, technology and the brand.

4) Strategic groups
The strategic dimensions set out in the previous section allow us to clearly appreciate
the competition in the sector. The strategy adopted by each firm is revealed in sharp
detail. If we look at the strategy of each of the competing firms, we can determine
which strategic dimensions are key. This in turn allows us to group competitors
following the same strategy. Strategic group is the term used here (see Figure 6).
In any given sector, the firms that compete most with one another belong to the same
strategic group. By definition, they are ones that follow the same strategy, have the
same key dimensions, target the same kind of customers and seek to cater to the same
needs. There may be similar strategic groups that are also strong competitors but never
in the same way as the firms belonging to the same strategic group. In a nutshell,
strategic groups are drawn up on the basis of the strategic dimensions they comprise and
this is a vital tool for revealing a firms real competitors.

12

Figure 6: Example of the formation of strategic groups in a sector

At the other extreme, one can also say that there are strategic groups in which the
companies they comprise, while forming part of the same sector, are not really
competing with one another. Do sports papers and general newspapers really compete
for the same readers? Do Audi and Mercedes really compete with Tata? These groups of
firms seek a competitive advantage in very different ways, targeting different kinds of
customers, who in turn value completely different features. They are in the same sector
but we can say that they do not compete with each other.
In fact, the strategic groups that are most successful and profitable are those whose
strategic dimensions are most highly valued by the market. These firms capture more
customers, many of whom are willing to pay more. It is precisely these strategic
dimensions that long-term protection against being copied by other firms in the sector.
If we once again take Apple-type firms as a profitable group based on innovation,
design, technology, brand, economies of scale and know-how, none of these dimensions
are easy to acquire, let alone all of them6. If a company is not in this strategic group, it
does not possess such dimensions and laying its hands on them is extremely hard7.
One can say that each strategic group has its own barriers to entry and which constitute
the strategic dimensions themselves. That said, although they can be considered
barriers to entry to the group, Michael Porter8 calls them barriers to mobility given
6

Hamel, G. and Prahalad, C.K. (1990) The Core Competence of the Corporation Harvard Business
Review. Boston
7

Hamel, G. and Prahalad, C.K. (1994) Competing for the Future, Harvard Business School Press

Porter, M. (1980) Competitive Strategy: Techniques for analyzing industries and competitors. New
York: Free Press.

13

that they stop a firm moving from one group to another. The strategic dimensions are
key barriers to mobility in the sector and must be taken into account when forming
strategic groups. If we form strategic groups whose dimensions are not barriers to
mobility, then we are grouping firms by a form of competition that is of no importance
and which does not confer competitive advantage.
In a nutshell, strategic dimensions and the strategic groups formed from them clearly
reveal the competition in the sector. They highlighted the competitors facing each firm.
They also group firms that constitute the greatest competition for one another and reveal
the various ways of competing in the sector.
We can end by saying that a firm may want to: cater to various market segments
(different customers, different needs); carry out various strategies; embrace different
strategic dimensions. The firm may thus be placed in different strategic groups, either
competing with different firms in each case or with the same ones should these also
follow different strategies. As an example, one can cite the Accor group in the hotel
sector. The company is present in various strategic groups. It carries out different
strategies in targeting diverse market segments (see Figure 7). Its Sofitel brand covers
mid to top range hotels (Pullman for business, Novotel for families); quality strategies
(Mercure, suite/apartment hotel); others seek the cheaper segment and take costs more
into account (All Seasons and Ibis); sweeping up the bottom of the market with bargainbasement hotels such as Motel 6 [in the USA and Canada], Etap and Formula 1).

Figure 7. Accor is present in various strategic groups (using different strategies).

Source: Accor Group
Obviously, a firm that can carry out a strategy well will be successful in its strategic
group. Yet although it may wholly meet the needs of one market segment, it may do
less well with another strategy. Several years ago, British Airways, seeing the market
shares and profits being made by low-cost airlines, decided to enter this strategic group
by setting up the Go subsidiary. Some years later, it was sold to EasyJet after failing to
meet BAs expectations.
This goes to show that strategy is a combination of many, diverse perspectives that need
to be combined the right way if the firm is to be successful and achieve a competitive
advantage. In any event, the life of a successful strategy is brought to an end by a host
of external factors (socio-economic setting, political and legal changes, technology, the

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market and competition) which change quickly and in unpredictable ways. This only
goes to show both the importance of strategy in running companies and the threats they
face.

5) Planned strategy versus emergent strategy

So far, we have described and delved into company strategy from various angles. This
last section looks at the way in which strategy can be decided. We have defined
planning as the process whereby strategy is decided through analysis (both of the setting
and of the companys internal workings) and the evaluation of the alternatives that
emerge as a result. However, there are many ways of making strategic decisions other
than by taking a rational, formalised, systematic and planned approach.
Critical authors9 argue that such a planned approach does not work in todays fastchanging, unpredictable world. They maintain that such a rational, formalised process
makes it harder a firm to react given that they often do not have enough time to take
decisions. Critics argue that this leads to another way of taking strategic decisions in
which a firm swings from one extreme to the other.
This is what is termed emerging strategy, which is a more incremental, cumulative and
intuitive way of thinking about and deciding the strategy. Here, processes are unplanned
and informal and choices crop up in response to unforeseen changes in the business
setting. Henry Mintzberg10 summarised the extremes by noting that planning marks one
path to strategy which the other is marked by learning. Figure 8 shows these two main
paths to drawing up a strategy. In planned strategy, one should note that in taking a
deliberated approach there is always a part that is not carried out in the end. By
comparison, emerging strategies involve a constant spate of decisions in response to
changes in the business setting.

Figure 8. Planned strategy and emergent strategy

Yet both paths lead to the strategy and both are needed depending on circumstances and
the firms competitive position. Indeed, many authors have highlighted the fact that

Mintzberg, H. (1978) Patterns of Strategy Formulation. Management Science 24, 934-948.

10

Mintzberg, H. and Waters, J.A. (1985) Of strategies, deliberate and emergent. Strategic Management
Journal 6 257-272.

15

strategy is a mixture of both visions11 and that in reality, companies combine both
approaches. Sometimes firms plan by taking their time, delving deep in their analyses
and indulging in reflection and debate. Other times, they react swiftly to big changes
stemming from their competitors, customers or business setting.
The important thing is that whatever path the company takes in deciding its strategy,
one needs to know and grasp the strategic concepts described above. All models of
strategic reflection can be used for planned strategy as a script for this formal, rational
process. However, it is also useful to know the strengths of the emerging strategy
approach in this case, as a mental model given that a grasp of key strategic
concepts and their interrelationships helps one understand and respond to changes in the
business setting more quickly.

6) Conclusions
The times in which strategic management was a relatively straightforward exercise have
gone for good. Today, turbulence is the norm and companies are affected by swift,
myriad changes. In todays world, the economic and financial situation takes
unexpected turns, customers are ever more fickle and demanding, and competitors get
better with each passing day. In such a testing business setting, only the best firms
survive.
In such circumstances, company managers and directors must master the concepts
described in this collection if they are to strategically build a future for their companies.
Any strategic decision involves risks because among other reasons it depends on
aspects of the business setting that are outside the firms control and are wholly
unpredictable. While one can never eliminate risks, strategic reflection can reduce them.
This is the spirit that underlies this chapter, which helps the reader understand some of
the pieces in the complicated strategic puzzle that todays firms strive to solve.
The last chapters of this collection are a continuation of the preceding ones. So far, we
have focused on the formulation of strategy. The following chapters cover decisions and
preparations for the implementation phase12. Tools for this purpose (such as the
Balanced Scorecard13) depend on which strategy is chosen14. In the implementation
stage, the firm must adapt its structure, organisation and strategy. As Alfred D.
Chandler15 noted, structure follows strategy, although as various authors argued later,
the opposite is also true (that is, strategy follows structure).
These last chapters complete the cycle of strategic management, although the truth is
that the cycle is a never-ending one with constant mutual feedback between strategy
formulation and implementation. Companies and managers can never take their eyes off
11

Grant, Robert M. (2003) Strategic planning in a turbulent environment: evidence from the oil majors.
Strategic Management Journal 24, 491-517.
12

Andrews, Kenneth. (1971) The concept of corporate strategy. Homewood, IL: Irwin.

13

Kaplan, R. and Norton, D.P. (1992) The Balanced Scorecard-Measures That Drive Performance.
Harvard Business Review, Boston, MA 70, 71-79.
14

Kaplan, R.S. and Norton, D.P. (2006) Alignment; Using the Balanced Scorecard to create corporate
synergies. Boston, Mass: Harvard Business School Publishing Corporation.
15

Chandler, Alfred D. (1962) Strategy and structure - Chapters in the History of the Industrial Enterprise.
MIT Press.

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strategic management in much the same way as a driver must never take his eyes off the
road. Failure to follow this simple rule can have fatal results.

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References
Abell, Derek F. (1980) Defining the Business: the starting point of strategic planning.
Englewood Cliffs, N.J.: Prentice Hall
Andrews, Kenneth. (1971) The Concept of Corporate Strategy. Homewood, IL: Irwin.
Ansoff, Igor H. (1965) Corporate Strategy: An analytic approach to business policy for
growth and expansion. New York (USA): McGraw-Hill.
Chandler, Alfred D. (1962) Strategy and Structure - Chapters in the History of the
Industrial Enterprise. MIT Press
Grant, Robert M. (2003) Strategic planning in a turbulent environment: evidence from
the oil majors. Strategic Management Journal, 24, 491-517.
Grant, Robert M. (2007) Contemporary Strategy Analysis. Blackwell Publishers.
Hamel, G., and Prahalad, C.K. (1990) The Core Competence of the Corporation.
Harvard Business Review. Boston.
Hamel, G., and Prahalad, C.K. (1994) Competing for the Future. Harvard Business
School Press.
Johnson, G.; Scholes K., and Whittington R. (2006) Exploring Corporate Strategy.
Pearson Education.
Kaplan, R., and Norton, D.P. (1992) The Balanced Scorecard-Measures that Drive
Performance. Harvard Business Review, Boston, MA 70, 71-79.
Kaplan, R.S., and Norton, D.P. (2006) Alignment. Using the Balanced Scorecard to
create corporate synergies. Boston, Mass: Harvard Business School Publishing
Corporation.
Mintzberg, H., and Waters, J.A. (1985) Of strategies, deliberate and emergent.
Strategic Management Journal, 6 257-272.
Mintzberg, Henry (1978) Patterns of strategy formulation. Management Science, 24,
934-948.
Porter, M. (1980) Competitive Strategy: Techniques for analyzing industries and
competitors. New York: Free Press.
Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior
Performance. New York: Free Press.

Glossary
Barriers to Mobility: Key strategic dimensions that describe the way a strategic group
competes and confers competitive advantage, which protects its members from
imitation by other firms and keeps those from other groups out.
Caught in the middle: Companies that want to follow all the generic strategies but fail
to achieve any of them.

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Competitive Advantage: A key aspect in which a firm has an edge over its competitors
and which is both perceived and prized by its customers.
Concentric Diversification: When two of a firms businesses exhibit some synergy,
whether because: (1) its customers are similar (but not the same) or; (2) there are
similarities in the technology/knowledge between the businesses or any combination
of (1) and (2).
Conglomerate Diversification: When there are no synergies among the various
businesses in a group (different clients, different technology/knowledge).
Corporate: Strategic level of a diversified company or a group of companies with
various businesses.
Cost Leader: Generic strategy whereby a company that has acted in a similar way to
other firms achieves lower costs. This excludes companies that have opted for
differentiation or specialisation strategies.
Differentiation: Generic strategy whereby a firm is better than others in its sector in
some key aspect (exclusiveness), which also happens to be an advantage that is
perceived and prized by its customers.
Economies of Scale: The fall in unit costs as company size increases this can be
found in various fields (operations, marketing, etc.)
Functional: Strategic level pertaining to a functional area, activity or department
(marketing, finances, operations, etc.)
Generic strategies: The three main ways of competing in a sector differentiation,
cost leadership and specialisation.
Horizontal Diversification: When the various businesses in a group have the same
customers (but which meet different needs) there is high synergy in marketing and sales
fields.
Learning Curve: The fall in unit costs resulting from the length of time the company
has been in the sector. It may be found in various fields (operations, R&D, etc.)
Planning: A process whereby the strategy is decided through analysis (both inside and
outside the firm) and evaluation of the alternatives that emerge as a result.
Specialisation or focus: Generic strategy whereby a firm focuses on just one segment
of a market (whether defined in geographical terms or by needs).
Strategic Dimensions: Ways of achieving competitive advantage. Exhaustive
description of the way a company competes (for example, quality, brand, economies of
scale)
Strategic Group: Companies in a sector following the same strategy and using the
same key strategic dimensions.
Strategic Levels: Various strategic perspectives (corporate, business and functional)
with different kinds of decisions and analytical models.
Strategic room for manoeuvre: Strategic dimensions that do not directly confer a
competitive advantage but which help in achieving those strategic dimension which do
give such an advantage.
Vertical Integration: When two of a firms businesses are linked such that one is a
supplier or client of the other.
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The Author
Xavier Gimbert Rfols
PhD in Company Management (ESADE - Universitat Ramon Llull, Barcelona). Degree in
Pharmacy (Universitat de Barcelona [UB]). MBA (ESADE). Professor of the Business
Policy Departments, ESADE - Universitat Ramon Llull [URL]. Visiting Professor at
various business schools and universities around the world. Director of various Executive
Programmes at ESADE. Author of various books, articles and case studies. Company
Consultant. Member of various Company Boards.

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