The competitive positioning approach to strategy Strategic management thinking

The competitive positioning approach to strategy

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The competitive positioning approach to strategy Strategic management thinking in the 1980s was dominated by the work of Michael Porter at the Harvard Business School whose five forces, generic strategy and value chain frameworks (1980 and 1985) added considerably to the tools available to the business strategist. In essence, Porter’s approach to strategic management begins with analysis of the competitive environment using the five-forces framework. This serves two major purposes. It indicates the potential profitability of the industry and assists in identifying the appropriate generic strategy for acquiring competitive advantage. External analysis is followed by value chain analysis, which examines the value-adding activities of the organization and the linkages between them. The final stage is selection of a generic strategy, supported by the appropriate configuration of value-adding activities. This, Porter argued, will position the business in its competitive environment in such a way that it achieves competitive advantage. McKiernan (1997) suggested that this approach can be termed outside-in as the initial focus is on the competitive environment rather than the resources of the organization. Porter’s approach has been criticized on the grounds that: . it is prescriptive and static; STRATEGIC AND MANAGEMENT ISSUES 23
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[ 23 ] . differences in industry profitability do not necessarily determine the profitability of the organizations within them (Rumelt, 1991); . it highlights (and presupposes) competition rather than collaboration; . it emphasizes the environment rather than the competences of the corporation. Despite these criticisms, Porter’s work provides tools that are invaluable to managers seeking to make sense of complex environments and activities. The resource, competence and capability approach to strategy Just as the 1980s were dominated by the competitive positioning school of thought, the 1990s saw the rise of resource-based theories of strategic management. These emphasized the importance not of the organization’s position in relation to its industry but rather the way in which it manages its resource inputs in developing core competences and distinctive capabilities (Prahalad and Hamel, 1990; Stalk et al., 1992; Kay, 1993; Heene and Sanchez, 1997). Research in the late 1980s and early 1990s (Rumelt, 1991; Baden-Fuller and Stopford, 1992) suggests that choice of industry is not a major factor in determining business profitability. The core competence of the organization is of greater importance. This indicates an ‘inside-out’ approach to strategic management based on the premise that competitive advantage depends on the behaviour of the organization rather than its competitive environment. Competence-based theories are not new; they came to prominence in the 1990s. Prahalad and Hamel (1990) argued that an organization must identify and build on its core competence: Core competencies are the collective learning of the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies.
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