1. REVIEW OF THE LITERATURE 1.1 The nature of strategy: Where and how are the Three Generic Strategies placed in the strategic theory? Strategy has been taken from the military frame and adapted to businesses, in a parallel process that enables the business strategy to get developed along time
and as situations change the way of doing businesses; but as they come from the
same origin there is not too much difference between both. Strategy has been
defined in militar terms as "A style of thinking; a conscious and deliberate process;
an intensive implementation system; the art of ensuring future success." 5 , but also
as about being different 6 in terms of competitive strategy, where porter explains
that "It means deliberately choosing a different set of activities to deliver a unique
mix of value." 7
Osama El-Kadi in 2008 criticized Porter on his definition of strategy that according
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to him made part of the most common concept for strategy and it was: the art of
analysing, projecting and directing campaigns in the way that it was conceived as
an analytic and planned process. On the other hand Osama affirmed: Strategy is
not planning. Strategy deals with competitive situations in an uncontrolled
environment. Planning deals with situations in a controlled environment .
The concept of strategy and the way it is raised on the strategic theory vary
through out the different areas in which strategy has been divided, and in which we
can find: political strategy, economic strategy, military strategy, general strategy,
and finally business strategy that is the area of interest of this thesis.
5 Sun Tzu, The Art of War
6 Michael Porter, What is Strategy? 7
However, those different areas in which strategy has been developed are linked
together in some way due to the nature of strategy that provides to some theories
the right to be valid across different areas and different points of view, sometimes,
creating new applications for strategy within particular areas and contexts. As an
example of this, we can mention that strategies for the war proposed by Sun Tzu
have inspired a developed reasoning applied to business strategy in authors like
Mark McNeilly who wrote: Sun Tzu and the art of business. 8 This nature also
explains why the concept and ideas on strategy either in business or any other
area are likely to be influenced by the whole environment and theoretical
framework, and so, criticized or supported by authors from different backgrounds.
The strategy developed on the organizational theory or so called business strategy
has passed through different stages in which the concept of strategy has taken a
new image, supported or contradicted for different authors ideas, those were also
based on different contexts. From the mentioned stages we can identify different
authors who have described tendencies, by gruping them into schools of thought,
we got the Henry Mintzberg s classification called: ten schools of thought (1990),
in which he grouped 3 normative schools into what he called the classical
approach (in which the positioning school of Porter), and the other 7 as descriptive
schools. Some other classifications like N?si s also included in its schools the
Porterism, making a total of seven. Karl?f described the Porter s generic strategy
as one of its 10 schools of thought. As it is seen, Porter s ideas are described as a
school of thought recognized by various authors, but has been also refused and
criticized to lose validity in the current dynamic environment.
7 Michael Porter, Competitve Strategy: Techniques for analyzing markets and competitors.
8 Some books developed after The art of war (6 th century BC)of Sun Tzu are: Sunzi; Michaelson, Gerald.
Sun Tzu: The art for Managers; 50 Strategic Rules . Avon, MA: OH Adams Media, 2001. Also: McNeilly,
Mark. Sun Tzu and the Art of Business: Six Strategic Principles for Managers. New York: Oxford
University Press, 1996. And finally: Krause, Donald G. The Art of War for Executives: Ancient Knowledge
for Today s Business Professional. New York: Berkley Publishing Group, 1995. 8
Always on Time
Marked to Standard
The classical approach to strategy in which Porter is classified as in the Positioning
school, has had a considerable impact on businesses during the last 5 decades,
and we can indentify some important basic ideas shared in the works issued under
this approach: an optimistic view of knowledge, where the CEO is recognized as
the only responsible for strategy formation; and centralized and planned processes
that finally bring about explicit strategies. Though, there is a notable ignorance of
the complex inside of organizations. 9 This basis would frame porter s ideas, and so
to limit those, as we will see in the next section.
Porter s traditional ideas are acknowledged as part of the Positioning School that
only recognizes three generic strategies, defining those as ways of competing
based on a previous choice of an attractive superior industry (Porter, 1980) and
aiming to place the company in a good position within this particular industry
(Porter, 1985). Michael Porter is also the founder of this school.
One of the latest classifications for Michael Porter s Position School was named
the boundary school in which Hamel and Al described to be primarly concerned
with research questions such as participation, joint ventures and network and
sector structures. 10
In contrast, Steve Milunovich, compares Porter s ideas with Ries and Trout s ones,
saying that Porter reinvented ancient strategy author s ideas, and that the concept
of strategy remains the same along time, it just differentiates from one to another
on how we apply a theory into the context. This critic from the starting point in the
development of Porter s model makes us think about the context in which he
developed the frame of the three generic strategies, and it was possible to identify
that processes were also analysis and implementation when looking for a future
positive outcome. Additionally, by the moment in which the generic strategies were
9 Strategy Theory C a Short Review of the Literature, Bjorn Haugstad, 1999, page 2
10 Hamel et Al 1989, Ito and Rose 1994, Markides and Williamson, 1994 9
proposed there were stable markets that allowed these strategies to have a
successful implementation on companies, and also the activity of analysis without
highly disturbed environments, allowed tools to be designed and to work, like the
five forces analysis used to provide a real picture of the current situation in which a
company might be involved, and in which a company could put itself into and
model internally its own business and design how was it going to get profits from.
1.2 Porter s Generic Strategies: What does his theory stand for?
1.2.1 What is Competitive Advantage and so Competitive Strategy?
According to Porter, companies must look for having a superior comparable
performance regarding competitors in the same industry, and described that the
competitive advantage is to have a profitability level greater than those in the
industry on the long run. He also described the cost leadership and the
differentiation as the two types of competitive advantage a company can have,
depending on the sources on which it is based on.
In 1985, Proffesor Porter defined competitive advantage as the ability of adding
value in the eyes of consumers, meaning the value perceived might be superior
than the sum of the amount of costs related to the production processes.
Subsequently, Porter s conception of strategy is that it is a matter of competitive
position, that a company creates by differentiating themselves in the eyes of its
valuable customers, including a process of adding value along a structure of
different activities interrelated in a way imperceptible for competitors, and so that
this complex mix differs from those created or used by competitors.
By 1980, Porter defined the competitive strategy as all the offensive or defensive
actions a company does in order to create a favourable and sustainable position
within an industry with the objective of having a superior performance which at the
end will be convert as a considerable ROI (return over investment). Additionally, he
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explained that these actions were the response to the competitive five forces that
according to him were the ones that determined the business environment and
competition level around a company.