Foundations of Corporate Success: How Business Strategies Add Value

By John A. Kay | Go to book overview

CHAPTER 1

The Structure of Strategy

In this chapter I describe three legendary stories of business success. In 1959 BMW was on the edge of bankruptcy. The company recovered to become one of the world's most profitable automobile manufacturers. Honda became the leading supplier of motor cycles in the United States within five years of entering the market. That example proved the prototype of Japanese attacks on many established Western industries. Glaxo, a British company best known for its baby foods, discovered what was to prove the best-selling drug in the history of the pharmaceutical industry, and marketed it around the world.

But success is most illuminating when contrasted with failures. So I also tell how Saatchi & Saatchi tried to create the world's first multinational, multidisciplinary consultancy business, how Groupe Bull sought to be a European rival to IBM, and how EMI exploited the most important advance in radiography since the discovery of X-rays; and how each of these endeavours brought the major companies concerned close to financial collapse.

These histories illustrate how corporate success is based on an effective match between the external relationships of the firm and its own distinctive capabilities. BMW, Honda, Glaxo are all firms which identified their distinctive capabilities, selected the markets best suited to these strengths, and built effective competitive strategies to exploit them. They did so sometimes belatedly and not always consciously, but it was that process which formed the basis of their subsequent success.

The other three firms exemplify the most common causes of failure. Bull simply lacked capabilities sufficient for its aspirations. Saatchi misunderstood the nature of its own competitive strengths and entered, expensively, markets in which its capabilities had no value. EMI, with the most distinctive capability of any of these six firms, failed to gain any long-run benefit from it by mishandling its relationships with its competitors and customers. It pursued a mistaken competitive strategy.

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