Competing in the New Economy
The Evolution of Strategy in the Knowledge Based Society
The winners in the new economy appear to be rewarded in the market place not necessarily by their current earnings but by what their key stakeholders appear to think as promising strategies. How do we communicate strategic logic when the focus is on obtaining capabilities through relationships? How do we communicate strategies if the focus is on generating future options?
The strategy phenomenon today is becoming network centric – compelling one to look beyond traditional units of analyses of business units and corporations. Industries are blurring due to technological convergence of digitization and the internet – compelling us to broaden the competitive landscape beyond the narrowly defined industry boundaries. The key resources that drive value creation are becoming knowledge and expertise – compelling us to rethink the drivers of competitive advantage. And since expertise is not limited to any given expertise is not limited to any given organisation, we need to develop newer and moer powerful lens of relationship expertise and positioning in the network of fast-changing expertise.
There is also a need to recognise a parallel shift. Strategy has been preoccupied with accounting performance and to some extent on financial market performance. As the business landscape shifts to knowledge based competition, it will be counterproductive if we continue to take our well tested and widely accepted approaches without adapting them and when necessary discarding some of them in favour of newer approaches.
How has Management Strategy in Managing its Core Competencies Evolved?
The evolution of Strategic Competitive Advantage has evolved over 3 eras:
§ Strategy as a Portfolio of Businesses (Economies of Scale)
§ Strategy as a Portfolio of capabilities (Economies of Scope)
§ Strategy as a Portfolio of Relationships (Economies of Expertise)
In discussing the evolution of strategy over these 3 eras, Pettigrew et al (2002) synthesise and put forward his understanding of strategy. Emerging new concepts are not replacements, but supplements of old concepts. Whilst the benefits of scale and scope are necessary for companies to continue competing, they are no long sufficient to create competitive advantage. New concepts such as economies of expertise are emerging as providers of vital supplements to the benefits of scale and scope, for companies to break parity and surge ahead of their rivals. (Venkatraman and Subramniam, 2001).
Era 1: Strategy as a Portfolio of Business
The early thoughts of competitive business strategy largely revolved around gaining advantage through economies of scale, as firms fought to dominate businesses through gaining market share. Industries were evaluated on their attractiveness – a function of the imperfections in their structural characteristics (for example, degree of concentration, barriers to entry/exit, rivalry). From a strategist perspective, perfect markets are unattractive, as these markets did not provide above normal profits. Instead, imperfect markets were desired as it created [next page]