All Srategy Is Local
All STRATEGY IS LOCAL
True competitive advantages are harder to find and maintain than people realize. The odds are best in tightly drawn markets, not big, sprawling ones.
"STRATEGIC" IS THE MOST OVERUSED WORD in the vocabulary of business. Frequently it's just another way of saying, "This is important" The reality is that there are only a few situations in which companies' strategies affect outcomes. Such situations are, however, worth trying to create since the alternative, achieving superior efficiency, is a more demanding route to success, and a more impermanent one.
The aim of true strategy is to master a market environment by understanding and anticipating the actions of other economic agents, especially competitors. But this is possible only if they are limited in number. A firm that has privileged access to customers or suppliers or that benefits from some other competitive advantage will have few of these agents to contend with. Potential competitors without an advantage, if they have their wits about them, will choose to stay away. Thus, competitive advantages are actually barriers to entry. Indeed, the two are, for all intents and purposes, indistinguishable.
Firms operating in markets without barriers -- that is, where competitive advantages do not exist or cannot be established -- have no choice but to forget about strategy and run their businesses as efficiently as possible. Even so, many neglect operations and divert attention and resources to purportedly strategic moves like acquiring companies in related businesses or entering bigger markets.
In markets without barriers, competition is intense. If the incumbents have even brief success in earning more than normal returns on investments, they will find new entrants swarming in to grab a share of the profits. Sooner or later, the additional competition will push returns down to the firms' cost of capital. The process that drives down profits also makes strategy irrelevant since there will be
True competitive advantages are harder to find and maintain than people realize. The odds are best in tightly drawn markets, not big, sprawling ones.
"STRATEGIC" IS THE MOST OVERUSED WORD in the vocabulary of business. Frequently it's just another way of saying, "This is important" The reality is that there are only a few situations in which companies' strategies affect outcomes. Such situations are, however, worth trying to create since the alternative, achieving superior efficiency, is a more demanding route to success, and a more impermanent one.
The aim of true strategy is to master a market environment by understanding and anticipating the actions of other economic agents, especially competitors. But this is possible only if they are limited in number. A firm that has privileged access to customers or suppliers or that benefits from some other competitive advantage will have few of these agents to contend with. Potential competitors without an advantage, if they have their wits about them, will choose to stay away. Thus, competitive advantages are actually barriers to entry. Indeed, the two are, for all intents and purposes, indistinguishable.
Firms operating in markets without barriers -- that is, where competitive advantages do not exist or cannot be established -- have no choice but to forget about strategy and run their businesses as efficiently as possible. Even so, many neglect operations and divert attention and resources to purportedly strategic moves like acquiring companies in related businesses or entering bigger markets.
In markets without barriers, competition is intense. If the incumbents have even brief success in earning more than normal returns on investments, they will find new entrants swarming in to grab a share of the profits. Sooner or later, the additional competition will push returns down to the firms' cost of capital. The process that drives down profits also makes strategy irrelevant since there will be