Are You Sure You Have a

Strategy?

Donald C. Hambrick
Columbia University
Graduate School of Business

Consider these statements of strategy drawn

from actual documents and announcements
of several companies:

Our strategy is to be the low-cost provider.

Were pursuing a global strategy.
The companys strategy is to integrate a set of
regional acquisitions.
Our strategy is to provide unrivaled customer
service.
Our strategic intent is to always be the firstmover.
Our strategy is to move from defense to industrial
applications.

What Is Strategy?
Our central concept of how we will
achieve our objectives
Our recognition of an opportunity
and plan for seizing it
What should it do for us?
Guide our resource allocation and
daily actions
Guide our design of organizational
arrangements
Provide a catalyzing shorthand of
what we are all trying to do
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Putting Strategy In Its Place

Mission
fundamental purpose
values

Objectives
specific targets

Strategic Analysis: C3E

Customer analysis

Strategy

Competitor analysis
Company capability analysis

Our central
concept of how we
will achieve our
objectives

Environmental analysis

Supporting Organizational
Arrangements
structure

rewards

processes

people

symbols

activities

functional policies and profiles

The Five Major Elements

of Strategy
Where will we be active?
(and with how much emphasis?)

Arenas

What will be our speed and sequence

of moves?

Which product categories?

Which market segments?
Which geographic areas?
Which core technologies?
Which value-creation stages?

Speed of expansion?
Sequence of initiatives?
Staging

Vehicles
Economic
Logic

Differentiators

How will we get there?

Internal development?
Joint ventures?
Licensing/franchising?
Acquisitions?
How will we win in the marketplace?

How will we obtain our returns?

Lowest costs through scale advantages?
Lowest costs through scope and replication advantages?
Premium prices due to unmatchable service?
Premium prices due to proprietary product features?
Etc.?
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Image?
Customization?
Price?
Styling?
Product Reliability?
Etc.?

Value-Creation Stages
Stages Outsourced

Stages Done In-house

A biotech company
Basic
Research

Product
Development

Clinical
Regulatory
Trials/Approvals

Manufacturing

Marketing/
Sales

Distribution

A toy company
Product
Development

Market
Research

Manufacturing

Marketing/
Advertising

Sales

Distribution/
Logistics

Examples of Strategic
Staging
a: printing equipment manufacturer with plans
to expand internationally and broaden the product line
Wide

Geographic
Scope

Narrow

Target

Stage 2

Stage 1

Currently
Narrow

Wide
Product line
breadth

Sta
ge

b: regional title insurance company with plans to

expand nationally by acquisition and build a
superior, prestigious brand
Target
National

Geographic
Scope
Stage 1

Stage 2

Regional

Currently
Weak

Strong
Brand
power
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Economic Logic:

How will we obtain returns above our cost of

capital?
Pricing Leverage:

a) Premium prices,
b) from price-insensitive buyers,
c) for product features they deem very
appealing,
d) and which competitors cant
readily match.

Cost Leverage:

through scale
through scope
through replication and experience
through advantageous endowments

Asset Leverage:

extraordinary asset turns

extraordinary asset longevity
brand leverage

Combinations are possible!

IKEAs Strategy
Arenas
Inexpensive contemporary
furniture
Young, white-collar
customers
Worldwide

Arenas

Staging
Rapid international
expansion, by region
Early footholds in each
country; fill-in later
Staging

Vehicles
Economic
Logic

Vehicles
Organic expansion
Wholly-owned stores

Differentiators

Differentiators
Very reliable quality
Low price
Fun, non-threatening
shopping expreience

Economic Logic
Economies of scale (global, regional,
and individual store scale)
Efficiencies from replication

Another Example:
GE Transportation Systems -Locomotives
Arenas
Diesel
Emphasize long and heavy hauls
(including industrial and mining)
Americas, Asia, Middle East, Africa
Limited defensive position in Europe

Staging
1: New Model X by Year 2
Push very aggressively in Latin
America and Asia
Sign Eastern Europe JVs

Arenas

2: New Model XX by Year 4

Push aggressively in Africa
Throughout: 5% annual
productivity
gains
Wait-and-see in
Western Europe

Staging

Vehicles
Economic
Logic

Vehicles
Differentiators

Wholly-owned subs
with extensive service sites
Selective JVs in Europe
(including Eastern/Central)

Differentiators
Service
Mileage/operating efficiency
Safety
Operator comfort/ergonomics

Economic Logic
Premium prices for superior product and service
Lowest diesel manufacturing costs (Erie factory)

Testing the Quality of Your

Strategy
Key Evaluation Criteria
1. Does your strategy fit with whats going on in the environment?
Is there healthy profit potential where youre headed? Does your strategy align with
the key success factors of your chosen environment (s)?
2. Does your strategy exploit your key resources?
With your particular mix of resources, does this strategy give you a good head start
on competitors? Can you pursue this strategy more economically than competitors?
3. Will your envisioned differentiators be sustainable?
Will competitors have difficulty matching you? If not, does your strategy explicitly
include a ceaseless regimen of innovation and opportunity creation?
4. Are the elements of your strategy internally consistent?
Have you made choices of arenas, vehicles, differentiators, and staging, and
economic logic? Do they all fit and mutually reinforce each other?
5. Do you have enough resources to pursue this strategy?
Do you have the money, managerial time and talent, and other capabilities to do all
you envision? Are you sure youre not spreading your resources too thinly, only to
be left with a collection of feeble positions?
6. Is your strategy implementable?
Will your key constituencies allow you to pursue this strategy? Can your
organization make it through the transition? Are you and your management team
able and willing to lead the required changes?

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