Foundations of Corporate Success: How Business Strategies Add Value

Foundations of Corporate Success: How Business Strategies Add Value

Foundations of Corporate Success: How Business Strategies Add Value

Foundations of Corporate Success: How Business Strategies Add Value


How did BMW recover from the edge of bankruptcy to become on of Europe's strongest companies? Why did Saatchi and Saatchi's global strategy bring the company to its knees? Why has Philips's outstanding record in innovation not been translated into success in the market? What can be learnt from the marriage contract about the conduct of commercial negotiations? These are some of the questions addressed as John Kay asks `What makes a business successful?' Drawing on his own business experience and on concepts in economics, legal theory, and sociology, the author presents a fresh approach to questions of business strategy. He rejects the military analogy which underpins much strategic thinking, in which success depends on size and share, on vision and leadership, on shifting patterns of mergers and alliances. John Kay argues that outstanding businesses derive their strength from a distinctive structure of relationships with employees, customers, and suppliers, and explains why continuity and stability in these relationships is essential for a flexible and co-operative response to change. By integrating organizational and financial perspectives on the performance of the firm, Kay not only gives insights into the creation of effective business strategies, but sheds light on the success - and failure - of national economies. As the single market develops, this book - full of insight and rigour, yet lively in style - is probably the most important European contribution to strategic thinking for many years. It will be vital reading for all who want to understand what distinguishes the successful company.


It is a common fate of business authors to find that their admired corporations are no longer so widely admired when their books come to be reprinted. Notoriously, several of the firms picked out in Peters and Waterman In Search of Excellence appeared as laggards not leaders in the decade that followed.

My approach in Foundations of Corporate Success helped me to finesse that problem. I argued that corporate success is based on the distinctive capabilities of the firm--those things, often the product of its particular history, which competitors cannot reproduce even after others realize the benefits these capabilities bring to the company that enjoys them. Corporations add value when they successfully match these distinctive capabilities to the external environment they face. It follows that there are not, and could never have been, any generally applicable strategies for corporate success. It also follows that the futures of individual corporations are bound to wax and wane, as capabilities become more or less distinctive and more or less relevant to the market which the company faces. So I have no difficulty in understanding why BMW or IBM, Disney or Liverpool Football Club, should experience both extraordinary success and traumatic failures.

So to see which companies will be successful in the next century, we need to look away from a projection of today's trends. It is a frequent mistake in looking forward to think that current performance and above all current size are the most important elements in future success. Size offers no long-term protection for those who have no true distinctive capability: lack of it proves no obstacle to those who genuinely enjoy one. The rise in industrial concentration in the twentieth century was driven by economics of scale based on low unit costs from long mass production runs. But today concentration is falling, with the growth of flexible manufacturing, and as the production of undifferentiated manufactured goods becomes a steadily diminishing proportion of the output of advanced economies.

There are many people in government and business who still look forward to production concentrated in fewer and fewer hands until a few large multinational businesses, with powers rivalling or exceeding national governments, dominate the world economy. They fail to appreciate that size is mostly the . . .

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