The Quintessence of Strategic Management

Philip Kotler · Roland Berger ·

Nils Bickhoff

The Quintessence of
Strategic Management
What You Really Need to Know to
Survive in Business

123
Prof. Dr. Philip Kotler Prof. Dr. h.c. Roland Berger
Northwestern University Roland Berger Strategy
Kellogg School of Management Consultants GmbH
Sheridan Rd. 2001 Mies-van-der-Rohe-Str. 6
Evanston, IL 60208 80807 Munich
USA Germany
[email protected] Roland [email protected]

Prof. Dr. Nils Bickhoff

Quintessential Strategies
Farnstrasse 39
22335 Hamburg
Germany
[email protected]

Original Title: Quintessenz des strategischen Managements, Springer-Verlag 2008

Translation: Claire Jokubauskas, London

ISBN 978-3-642-14543-8 e-ISBN 978-3-642-14544-5

DOI 10.1007/978-3-642-14544-5
Springer Heidelberg Dordrecht London New York

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Table of Contents

Introduction: Essential Strategy Know-How and Nothing More ........ 1

1 Strategy and Strategic Management: A First Basic Under-

standing ........................................................................................ 5
1.1 What is Strategy and How is it Developed? .......................... 5
1.1.1 Modern Opinions ........................................................... 5
1.1.2 Basic Historical Concepts .............................................. 6
1.1.3 A First Example: The Second Punic War ...................... 8
1.2 The Theoretical Response: Strategy as an Integrated
Concept ............................................................................... 12
1.2.1 Strategy ........................................................................ 12
1.2.2 Strategic Management.................................................. 14
1.3 The Process-Based Response: Strategic Planning – An
Organized Understanding of Strategy Processes................. 15
1.3.1 General Planning .......................................................... 15
1.3.2 Strategic Planning ........................................................ 17
1.3.3 Operational Planning.................................................... 17
1.3.4 Steering and Controlling the Operational Planning...... 17
1.3.5 Implications of Strategic Planning as a Concept .......... 17
1.4 The Innovative Response: Creative Rule-Breaking as an
Alternative Way of Executing Strategy Processes .............. 19
1.4.1 Why Rules Need to be Broken ..................................... 19
1.4.2 The Rule-Breaking Strategy Creator – Four Steps to
Breaking the Rules ....................................................... 21
vi

2 Strategic Frames of Reference: The Key Tools of Strategy

Determination, their Principles, and How they Interact ............. 27
2.1 Why it is Important to Structure the Market, the
Competition, and Your Own Company Properly ................ 28
2.1.1 Interdependencies Between the Key Approaches ........ 28
2.1.2 The Harvard Business School SWOT Analysis – The
Data Basis for all Interpretive Tools of Strategy
Determination .............................................................. 30
2.2 Analyzing Corporate Strategies .......................................... 34
2.2.1 Horizontal Growth Options: Ansoff’s Product/Market
Matrix........................................................................... 35
2.2.2 Portfolio Management: Portfolio Analysis (Matrix) .... 38
2.3 Analyzing Business Strategies ............................................ 44
2.3.1 The Market-Based View: The Structure-Conduct-
Performance Paradigm and Porter’s Five Forces ......... 45
2.3.2 The Resource-Based View: The Core Competency
Approach ...................................................................... 50
2.3.3 Dynamic Markets: The Simple Rules Approach .......... 51
2.4 Network Approaches: The Business Model – An Inte-
grative Frame of Reference for Describing a Strategy ........ 54
2.4.1 From Old to New Business Models ............................. 55
2.4.2 The Three Components of a Business Model .............. 56
 vii

3 Current Focal Areas in Strategy Practice: Four Significant

Management Concepts of the Past 20 Years .............................. 65
3.1 Growth Strategies................................................................ 67
3.1.1 Value-Based Management, Protecting Your Market
Share, Limits and Approaches ..................................... 67
3.1.2 Seven Growth Strategies in Strategy Practice .............. 74
3.2 Business Process Reengineering ......................................... 79
3.2.1 Belief and Reality......................................................... 79
3.2.2 An Implementation Example ....................................... 90
3.3 Strategic Brand Management .............................................. 96
3.3.1 The Brand: Complex and Meanwhile Indispensable.... 97
3.3.2 Examples of Brand Evaluation Using Positioning
Analysis...................................................................... 108
3.4 Strategic Gaming .............................................................. 113
3.4.1 Game Theory: A Way of Dynamically Modeling the
Competition................................................................ 114
3.4.2 Dynamic Competitive Simulation in Reality ............. 120

Summary: It’s Your Turn! .............................................................. 125

Introduction: Essential Strategy Know-How
and Nothing More
A book on strategy and strategic management must inevitably be
called into question. There are so many outstanding and relevant
works on the subject, does the executive readership – many of whom
were students at one time or another – really need another volume on
the bookshelf? The state of knowledge on strategy and strategic
management has not changed so dramatically in recent years as to
justify another book in itself. Yet there remain two significant,
mutually dependent gaps in the forest of books:
a) Even though the number of Business Administration
graduates is countless and even though they and others
develop strategies, most practitioners of strategy lack a
fundamental understanding of the word itself, of the strategy
process, of the mechanics of the key tools and their
relationships.
b) The reasons for this lie in the vast and often excessive
amount of information and the sheer number of approaches
that exist on the subject of strategy. No one has yet
attempted to present the quintessence of strategic
management – or what you really need to know to survive in
the competitive arena. Naturally with an objective such as
this, some knowledge on the subject will fall by the wayside
but what it boils down to here is the quintessence, the
bottom line – for everything else there are extensive
textbooks to refer to. 1

1
To cite but one example of a book that is truly outstanding and extensive:
Pettigrew A./Thomas H./Whittington R. (ed.), Handbook of Strategy and
Management, London et al. 2002.
2

The aim of this book was and is, therefore, to fill this gap in a way
that covers as few pages and is as accessible as possible, while
communicating the fundamental, most important theoretical aspects
and facilitating the transfer of this knowledge to real-life decision
situations. There can be but few readers whose job description
constitutes a knowledge of strategic management alone – and theirs
must be a rather academic career at that. The majority will become
(or already are) practitioners of strategy, who will need to structure
and evaluate strategic situations – it is for these practitioners in
particular that this book is intended.
However pragmatic or brief it may be, every book needs a structure:
in this case there are three main sections. First we develop a common
understanding of the word “strategy” and the process of “strategic
management” to ensure that all readers start from the same base
point. In the second section we present the frames of reference for
strategic thinking, how they interlink and how they fit into strategic
management.2 Following these two fundamental sections, part three
deals with selected management concepts as employed in strategy
practice, which have taken up some of the core ideas from the frames
of reference and integrated them in a practice-oriented manner. There
is a great deal of practical relevance here: numerous fictitious and
real examples, some of them disguised, are used throughout to
illustrate the frames of reference and management concepts
presented.

2
The descriptions of the mechanisms are drawn solely from original articles
by their developers in a bid to avoid distorted interpretations.
 3

Having read this book:

• You will have a basic understanding of strategy and the
process of strategic management.
• You will know the most important strategy tools (incl. the
respective original literature) and how they interact.
• You will be aware of the focal areas and considerations of
strategy in practice.
• You will be able to analyze and interpret business
information with regard to the underlying strategic notions.
There is one thing we should get out of the way right from the start:
no one – not even this book – can say for sure what the right or
optimal strategy in a given situation is. This has a lot to do with the
long-term perspective of strategic decisions, which are (almost)
always made in complex and dynamic settings. That is why it is
important to obtain a thorough picture of the strategic starting point
and then to consider the possibilities from numerous perspectives. In
doing so you take away some of the uncertainty of the decision and
get an idea of the way forward – this is best achieved in combination
with many years of experience in the industry and function
concerned. You yourself will need to bring the many years of
experience with you; this book will show you, among other things,
how to apply processes and tools to reduce the risks you face on the
way to making a strategic decision.
1 Strategy and Strategic Management: A
First Basic Understanding
Let’s start from the beginning. Let’s assume you do not know what
strategy means, either you’ve just heard the word for the first time or
you’ve never used it consciously before. This section helps you
establish an initial, basic understanding of strategy and the process of
strategic management – please take it as a basic understanding and
not as a conclusive definition: as you will see, a feel for strategy can
only be developed on an individual, case-by-case basis.

1.1 What is Strategy and How is it Developed?

Strategy is not an easy thing to describe. You first need to understand

the meaning of the word in all of its facets before you can develop an
individual feel for strategy, which you will gradually enhance every
time you put it to practical application. You will find, however, that
your personal learning curve never flattens out: it will remain on a
continuous upward trajectory. The concept of strategy is not restricted
to the business world – private life, sports, and politics are also
marked by strategies. The examples in this book deal mostly with
economic issues but the content is equally applicable to other areas.

1.1.1 Modern Opinions

“Nobody really knows what strategy is!” – The British news

magazine The Economist crisply and concisely conveyed the current
state of knowledge back in 1993 (in its issue dated March 20, 1993).
And to this day we are not a single step closer. Quite the opposite, in
fact: the vigorous research conducted in recent years – besides
producing a few good practical approaches – has increasingly blurred
our view of what strategy is really about. Just as we often can’t see

P. Kotler, R. Berger, N. Bickhoff, The Quintessence of Strategic Management,

DOI 10.1007/978-3-642-14544-5_1, © Springer-Verlag Berlin Heidelberg 2010
6

the wood for the trees, so we can no longer make out the true
meaning of strategy owing to the multitude of strategic concepts that
exist. Even the renowned Harvard Business School complained of the
danger of “paralysis through analysis”: faced with a specific need to
make strategic decisions, how are we supposed to manage the
complexity of the copious analyses and formulate a good strategy?
Markides, for his part, advises us against even bothering to integrate
the concepts in a planning context. He defines a good strategy on the
basis of its result: “… behind every successful company there is a
superior strategy.”3 So “all” we need to do is understand and copy
the strategies of successful companies and the issue of a precise
definition becomes irrelevant.

1.1.2 Basic Historical Concepts

The concept of “strategy” comes from the Greek word “strategos,”

meaning “leadership” in the military sense: it concerns planning the
deployment of resources to achieve certain objectives. It was Carl
von Clausewitz (1780–1831), a Prussian general and military theorist,
who said, “Strategy is the economy of force,” which is why he is
often referred to as the first strategist. A look back at history,
however, reveals that many military leaders before him, such as
Caesar, Sun Tzu, and Machiavelli, designed and formulated militarily
motivated strategies (see Fig. 1). And each of these military
strategies, some of which date back to antiquity, holds true for
management by analogy.

3
Markides C., “A dynamic view of strategy” in: Sloan Management Review
40/3 (1999), pp. 55–63.
 7

Basic military
strategies Management

1 Concentration of resources

2 The element of surprise

Sun Tzu

Xenophon 3 Selection of a theater of war according to one’s own strengths

Caesar Still valid

4 Organization and communication between generals and battalions to this day
Machiavelli is top priority

Clausewitz
5 Precise coordination of strategic objectives and resources
Moltke
6 Substantial advantage through innovation (type of weapons, type
of warfare)

Fig. 1: Basic military strategies that still hold true for management today

After all, resource concentration, surprise, innovation, organization

and communication, the coordination of objectives and resources, and
the consideration of one’s own strengths are watchwords for the
decision makers of today in their everyday business in the market,
competitive, and corporate arenas. Thus, the understanding of
strategy has not changed, only the venue is a different one for
managers.