What is strategy?

Parafrazing Webster we define strategy as the science and art of business command exercised to meet the competition on market under advantageous conditions. Its goal is to integrate competitors into business planning in order to alleviate competition and thus capture outstanding profits. Implementating clever strategies is the future of effective management.

Every industry goes through three distinct stages that call for different managerial focus. Lets take an automotive industry for example. With automatization of production car became a commodity. It was produced en masse, as a completely undiferentiated product. It was built to satisfy the most basic and obvious need of efficient transportation. Marketing and strategy were mostly implicit. The focus was on operating effectiveness. Lowering costs increased market and helped to retain healthy profit margins. At the same time it was a sufficient condition to beat the competition.

After second world war car manufacturers shifted focus to improvements in design. New car models and model types such as Chevrolet motoramas penetrated the market. Cars should now be comfortable and able to fulfill the needs of adventure and exploration. They also became a personal statement. New american prosperity and low-costs of fuel and production spawned the market differentiation. Good marketing became sufficient condition to beat the competition.

Then in seventies Japanese competitors entered the US market. With new management techniques and favorable national industry structure they moved the productivity frontier. Their cheap low-class  models penetrated the lower segments of the market where car was perceived more as a commodity. Furthermore Japanese operating efficiency was so big that later on they were able to compete even in higher segments where they presented cars that were cheaper and of better quality than their competition.

Now operating efficeincy and marketing are necessary conditions to achieve profitability. Production is more and more pushed to developing countries with cheap labour. Almost every big player in industry now has joint ventures established in China. Now strategy is taking front position in management focus as a sufficient condition for profitability. It is paramount for companies to limit market segments they are going to serve. This choice must be supported by cluster of activities and capabilities that are self-enforcing. If they are selected on the basis of fundamental factor, cultural and knowledge advantages even sucessful mimicking (which is hard to achieve) is rendered useless.

The best example of succesful strategic player in automotive industry is BMW. They aim to premium customers.  They have an outstanding organizational structure of personal networks which fosters innovation and responsiveness, a customized production system that enpowers workers creativity and incredibly strong R&D and marketing departments supported by best engineering cadre.

Mercedez on the other hand did not manage to retain congruency between its market image and product. Once known as the most reliable car in the world it didn't keep up with the promise in the time when electronic components add up to 20% of the car value. As a consequence Mercedes is steadily losing sales while BMW now dominates market share in premium class and operates profitably even in the times of economic downturn.