In today’s highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary [...]

While a business must continually adapt to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic decision-making. These unchanging ideals form the business vision and are expressed in the company mission statement. In their 1996 article entitled Building Your Company’s Vision, James Collins and [...]

Strategy can be formulated on three different levels: corporate level business unit level functional or departmental level. While strategy may be about competing and surviving as a firm, one can argue that products, not corporations compete, and products are developed by business units. The role of the corporation then is to manage its business units [...]

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: Political Economic Social Technological The acronym PEST (or sometimes rearranged as “STEP”) is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as [...]

The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by [...]

If the primary determinant of a firm’s profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns. A firm positions itself by leveraging its strengths. Michael [...]

  To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted [...]

     The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. Because it can have a significant impact on a business unit’s position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important [...]

  The acquisition of additional business activities at the same level of the value chain is referred to as horizontal integration. This form of expansion contrasts with vertical integration by which the firm expands into upstream or downstream activities. Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions [...]

To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm’s present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff’s matrix is shown below:   Ansoff Matrix [...]

  The Boston Consulting Group, Perspectives on Strategy Perspectives on Strategy contains Bruce Henderson’s original writings on the BCG growth-share matrix. Specific articles include: The Product Portfolio – introduces the growth-share matrix and its dynamics, including the success sequence and the disaster sequence. Cash Traps – explains why the majority of products are cash traps. [...]

In consulting engagements with General Electric in the 1970′s, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix and is shown below:   GE / McKinsey Matrix     Business Unit Strength     High      Medium  [...]

In their 1990 article entitled, The Core Competence of the Corporation, C.K. Prahalad and Gary Hamel coined the term core competencies, or the collective learning and coordination skills behind the firm’s product lines. They made the case that core competencies are the source of competitive advantage and enable the firm to introduce an array of [...]

During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries. To create a successful [...]

Classical theories of international trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit. Factor endowments include land, natural resources, labor, and the size of the local population. Michael E. Porter argued that a nation can create new advanced factor endowments such as skilled labor, a [...]

The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms: Exporting Licensing Joint Venture Direct Investment   Exporting Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and [...]