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Foundations of Strategy
Second Edition
Robert M. Grant
Judith Jordan
Copyright ? 2015, 2012 Robert M. Grant and Judith Jordan
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Library of Congress Cataloging-in-Publication Data
Grant, Robert M., 1948Foundations of strategy / Robert M. Grant & Judith Jordan.?Second Edition.
pages cm
Includes index.
ISBN 978-1-118-91470-0 (pbk.)
1. Strategic planning. 2. Industrial management?Technological innovations.
I. Jordan, Judith. II. Title.
HD30.28.G7214 2015
658.4?012?dc23
2014039505
ISBN: 978-1-118-91470-0 (pbk)
ISBN: 978-1-119-00131-7 (ebk)
ISBN: 978-1-119-00127-0 (ebk)
A catalogue record for this book is available from the British Library.
Preface to 2nd edition
The second edition retains its aim of providing a concise introduction to the key concepts, frameworks and techniques of
strategy for those who are coming to the subject for the first time. The emphasis remains on practicality and how theory can
be used to gain strategic insight into the challenges facing business organizations. At the same time, the content of the book
has been revised to reflect recent developments in the business environment and in strategy research and to take into
account feedback from instructors.
The distinctive features of the second edition include:
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changes and updates to opening and closing cases to reflect the current issues facing decision makers in a broad array of business
organizations (Chapters 1 to 9);
? a more integrated approach to value creation and strategic analysis in not-for-profit contexts (particularly Chapter 1 but
throughout the text);
? a stronger emphasis on strategic change that is structured around the challenges and ways of managing change and highlights the
development of new capabilities and ways in which organizations seek to become more responsive and flexible (Chapter 5);
? a more concise and integrated treatment of strategy implementation; while the book maintains its emphasis on integrating strategy
formulation and integration, Chapters 5 and 9 offer a more accessible and systematic approach to strategy execution;
? updates to the discussion of current trends in strategic management to reflect changes in the business climate and new strands of
research including practice-based approaches (Chapter 10).
Like the first edition, the second edition of Foundations of Strategy draws heavily on the ideas, theories and evidence presented
in Robert Grant?s text Contemporary Strategy Analysis. It has also benefited from the feedback and suggestions of academic
staff and students in the many universities and colleges where Foundations of Strategy has been adopted. We look forward to
broadening and deepening our engagement with users.
We are also grateful for the professionalism and enthusiasm of the editorial, production, and sales and marketing teams at
John Wiley & Sons Ltd.
Preface to 1st edition
Robert Grant?s Contemporary Strategy Analysis is one of the market-leading text books used on MBA and advanced
undergraduate courses around the world. During the continuing development of that text, now in its 8th edition, it has
become apparent that there is also considerable demand for a more accessible and concise version of the text. In response to
this demand, we have developed Foundations of Strategy as a brand new textbook. While maintaining the accessible writing
style, clear approach and sound theoretical depth, this new text is better suited to the needs of both undergraduate students
and Masters? students requiring a more concise treatment of the subject.
As all those with an interest recognise, the way in which business and management education is delivered continues to evolve
and change over time. Strategy modules remain a key part of business and management programmes but are now delivered
in a wide variety of different formats, to a diverse range of students using a variety of different technologies. Strategy
educators frequently find themselves with the challenge of having to deliver strategy modules in relatively short time frames
to students with limited prior knowledge and experience of business and management practice. This text is designed to assist
educators and students meet this challenge. Our aim has been to cover the key areas of strategy as concisely as possible
without sacrificing intellectual rigour. To that end we have:
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Made clear the learning objectives and provided summary tables against these objectives at the start and end of each chapter.
Organised the book on the basis of ten chapters.
Provided a range of short cases that students can read and digest quickly and that can be used as an alternative to, or in
conjunction with, longer cases available on the web.
Included worked examples relating to the opening case of each chapter demonstrating how theory can be applied to practice in
order to gain insight into strategic decision-making.
Highlighted key concepts in the margin.
Provided a glossary of key terms.
Online teaching and learning resources
Visit www.foundationsofstrategy.com to access all the teaching and learning materials that accompany this text.
Instructors will find extensive teaching materials such as an Instructor?s Manual, including Case Teaching Notes, a Test Bank
and PowerPoint Slides. The website also features extra, longer Case Studies written by Robert M. Grant, as well as Case
Video Clips.
Resources for students include Self-Test Quizzes and Glossary Flashcards.
Contents
1.
2.
3.
4.
5.
6.
7.
8.
Cover
Title page
Copyright page
Preface to 2nd edition
Preface to 1st edition
Online teaching and learning resources
Case List
1: The concept of Strategy
1. Introduction and objectives
2. The role of strategy in success
3. A brief history of strategy
4. Strategy today
5. Strategic management of not-for-profit organizations
6. The approach taken in this book
7. Summary
8. Summary table
9. Further reading
10. Self-study questions
11. Notes
9. 2: Industry analysis
1. Introduction and objectives
2. From environmental analysis to industry analysis
3. The determinants of industry profit: Demand and competition
4. Analysing industry attractiveness
5. Applying industry analysis to forecasting industry profitability
6. Using industry analysis to develop strategy
7. Defining an industry
8. Reviewing the five forces of competition framework
9. Segmentation analysis
10. Dealing with dynamic competition
11. From industry attractiveness to competitive advantage: Identifying key success factors
12. Summary
13. Summary table
14. Further reading
15. Self-study questions
16. Notes
10. 3: Resources and capabilities
1. Introduction and objectives
2. The role of resources and capabilities in strategy formulation
3. Identifying the organization?s resources and capabilities
4. Appraising resources and capabilities
5. Developing strategy implications
6. Summary
7. Summary table
8. Further reading
9. Self-study questions
10. Notes
11. 4: The nature and sources of competitive advantage
1. Introduction and objectives
2. How competitive advantage emerges and is sustained
3. Types of competitive advantage: Cost and differentiation
4. Porter?s generic strategies and being ?stuck in the middle?
5. Summary
6. Summary table
7. Further reading
8. Self-study questions
9. Notes
12. 5: Industry evolution and strategic change
1. Introduction and objectives
2. The industry lifecycle
3. Managing organizational adaptation and strategic change
4. Managing strategic change
5. Summary
6. Summary table
7. Further reading
8. Self-study questions
9. Notes
13. 6: Technology-based industries and the management of innovation
1. Introduction and objectives
2. Competitive advantage in technology-intensive industries
3. Strategies to exploit innovation: How and when to enter
4. Competing for standards
5. Implementing technology strategies: Creating the conditions for innovation
6. Summary
7. Summary table
8. Further reading
9. Self-study questions
10. Notes
14. 7: Corporate strategy
1. Introduction and objectives
2. The scope of the firm
3. Key concepts for analysing firm scope
4. Diversification
5. Vertical integration
6. Managing the corporate portfolio
7. Summary
8. Summary table
9. Further reading
10. Self-study questions
11. Notes
15. 8: Global strategies and the multinational corporation
1. Introduction and objectives
2. The implications of international competition for industry analysis
3. Analysing competitive advantage in an international context
4. The international location of production
5. How should firms enter foreign markets?
6. Multinational strategies: Global integration vs. national differentiation
7. Strategy and organization within the multinational corporation
8. Summary
9. Summary table
10. Further reading
11. Self-study questions
12. Notes
16. 9: Realizing strategy
1. Introduction and objectives
2. From strategy to execution
3. Organizational design: The fundamentals of organizing
4. Organizational design: Choosing the right structure
5. Organizational culture
6. Summary
7. Summary table
8. Further reading
9. Self-study questions
10. Notes
17. 10: Current trends in strategic management
1. Introduction and objectives
2. The new environment of business
3. New directions in strategic thinking
4. Redesigning organizations
5. The changing role of managers
6. Summary
7. Summary table
8. Further reading
9. Self-study questions
10. Notes
18. Glossary
19. Index
20. End User License Agreement
List of Tables
1. Chapter 1
1. Table 1.1: Applying the concepts and tools of strategic analysis to different types of not-for-profit organization.
2. Chapter 2
1. Table 2.1: The profitability of US industries: 2000?2010.
2. Table 2.2: Identifying key success factors: Steel, fashion clothing and supermarkets.
3. Table 2.3: Private and public health and fitness clubs in the UK: 2011 and 2014.
4. Table 2.4: Leading UK private health and fitness club operators: 2014.
5. Table 2.5: Selected financial data for leading UK private health and fitness club operators (2010?2013).
3. Chapter 3
1. Table 3.1: Indicators of Harley-Davidson performance: 1994?2013.
2. Table 3.2: Large companies with the highest valuation ratios, April 2014.
3. Table 3.3: The world?s most valuable brands, 2013.
4. Table 3.4: A functional classification of organizational capabilities.
5. Table 3.5: Profits, dividends and employee compensation at Goldman Sachs.
6. Table 3.6: Appraising Harley-Davidson?s resources and capabilities.
4. Chapter 4
1. Table 4.1: Costs of available seat kilometres (ASK) between 2001 and 2009 in US cents.
2. Table 4.2: Features of cost leadership and differentiation strategies.
5. Chapter 5
1. Table 5.1: The evolution of industry structure and competition over the lifecycle.
2. Table 5.2: Shaking the foundations.
3. Table 5.3: Distinctive capabilities as a consequence of childhood experiences: The oil majors.
6. Chapter 6
1. Table 6.1: Leaders, followers and winners In emerging Industries.
2. Table 6.2: Examples of companies that own de facto industry standards.
3. Table 6.3: The characteristics of ?operating? and ?innovating? organizations.
4. Table 6.4: Suppliers of single-serve coffee systems.
7. Chapter 7
1. Table 7.1: Vertical integration (VI) versus outsourcing: Some key considerations.
2. Table 7.2: Key considerations in outsourcing transport for Tesco.
3. Table 7.3: Disney?s revenue 2012/13.
8. Chapter 8
1. Table 8.1: Hourly compensation costs for production workers in manufacturing (US$).
2. Table 8.2: Where does the iPhone come from? The location of iPhone suppliers.
3. Table 8.3: Ghemawat?s CAGE framework for assessing country differences.
9. Chapter 9
1. Table 9.1: Mechanistic versus organic organizational forms.
10. Chapter 10
1. Table 10.1: Emerging-market corporations acquiring Western companies: Some illustrative examples.
List of Illustrations
1. Chapter 1
1. Figure 1.1: Common elements in successful strategies.
2. Figure 1.2: Evolution of strategic management: Dominant themes.
3. Figure 1.3: Some definitions of strategy.
4. Figure 1.4: Corporate versus business strategy.
5. Figure 1.5: Describing a firm?s strategy: Competing in the present, preparing for the future.
6. Figure 1.6: Stakeholder power/interest grid.
7. Figure 1.7: Responses to stakeholders? positions within the power/interest grid.
8. Figure 1.8: The basic framework: Strategy as a link between the firm and its environment.
9. Figure 1.9: Tough Mudder: Growth 2010?2014.
2. Chapter 2
1. Figure 2.1: From PEST analysis to industry analysis.
2. Figure 2.2: Porter?s five forces of competition framework.
3. Figure 2.3: The structural determinants of the five forces of competition.
4. Figure 2.4: Five forces, or six?
5. Figure 2.5: Identifying key success factors.
3. Chapter 3
1. Figure 3.1: Analysing resources and capabilities: The interface between strategy and the firm.
2. Figure 3.2: The links between resources, capabilities and competitive advantage.
3. Figure 3.3: Porter?s value chain.
4. Figure 3.4: The hierarchy of organizational capabilities at a telecom equipment manufacturer.
5. Figure 3.5: Appraising the strategic importance of resources and capabilities.
6. Figure 3.6: Harley-Davidson?s share price, revenue and net income: 1995?2013.
7. Figure 3.7: The framework for appraising resources and capabilities.
8. Figure 3.8: Summary: A framework for analysing resources and capabilities.
4. Chapter 4
1. Figure 4.1: The emergence of competitive advantage.
2. Figure 4.2: Sustaining competitive advantage: Types of isolating mechanism.
3. Figure 4.3: Sources of competitive advantage.
4. Figure 4.4: The drivers of cost advantage.
5. Figure 4.5: Using the value chain to identify differentiation potential on the supply side.
6. Figure 4.6: Porter?s generic strategies.
5. Chapter 5
1. Figure 5.1: Worldwide shipments of personal computers 1978?2014 (millions of units).
2. Figure 5.2: The industry lifecycle.
3. Figure 5.3: Product and process innovation over time.
4. Figure 5.4: Innovation and renewal in the Industry lifecycle: US retailing.
5. Figure 5.5: Phased development at Hyundai Motor.
6. Chapter 6
1. Figure 6.1: The development of technology: From knowledge creation to diffusion.
2. Figure 6.2: Appropriation of value: Who gets the benefits from innovation?
3. Figure 6.3: Complementary resources.
4. Figure 6.4: Alternative strategies for exploiting innovation.
7. Chapter 7
1. Figure 7.1: The scope of the firm: Specialization versus integration.
2. Figure 7.2: The value chain for steel cans.
3. Figure 7.3: Different types of vertical relationship.
4. Figure 7.4: The GE/McKinsey portfolio planning matrix.
5. Figure 7.5: The BCG growth-share matrix.
6. Figure 7.6: The Heartland Matrix: The potential for parenting advantage.
8. Chapter 8
1. Figure 8.1: Patterns of industry internationalization.
2. Figure 8.2: Competitive advantage in an international context.
3. Figure 8.3: Porter?s national diamond framework.
4. Figure 8.4: Determining the optimal location of value chain activities.
5. Figure 8.5: Alternative modes of overseas market entry.
6. Figure 8.6: Benefits of global integration versus national differentiation.
7. Figure 8.7: The development of the multinational corporation: Alternative parent-subsidiaries relations.
8. Figure 8.8: The transnational corporation.
9. Chapter 9
1. Figure 9.1: The generic annual strategic planning cycle.
2. Figure 9.2: How hierarchy economizes on coordination.
3. Figure 9.4: General Electric: Organizational structure: 2009.
4. Figure 9.5: Royal Dutch Shell Group: Pre-1996 matrix structure.
5. Figure 9.6: Illustrative organization chart for Cisco 2007.
10. Chapter 10
1. Figure 10.1: CEO-to-worker compensation ratios 1965?2012.
1
The concept of strategy
Introduction and objectives
Opening Case: Strategy and success: Lady Gaga and Jeff Bezos
The role of strategy in success
A brief history of strategy
Origins
The evolution of business strategy
Strategy today
What is strategy?
How do we describe a firm?s strategy?
How do we identify a firm?s strategy?
How is strategy made? Design versus emergence
What roles does strategy perform?
Strategy: In whose interest? Shareholders versus stakeholders
Strategy: Whose interests should be prioritized?
Profit and purpose
The debate over corporate social responsibility
Strategic management of not-for-profit organizations
The approach taken in this book
Summary
Further reading
Self-study questions
Closing Case: Tough Mudder LLC: Turning mud runs into a global business
Notes
Introduction and objectives
Strategy is about success. This chapter explains what strategy is and why it is important to individuals and organizations in achieving
their goals. We will distinguish strategy from planning. Strategy is not a detailed plan or programme of instructions; it is a unifying
theme that gives coherence and direction to the actions and decisions of an individual or an organization.
The principal task of this chapter is to introduce the notion of strategy, to make you aware of some of the key debates in strategy and to
present the basic framework for strategy analysis that underlies this book.
By the time you have completed this chapter, you will:
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appreciate the contribution that strategy can make to successful performance, both for individuals and for organizations;
be aware of the origins of strategy and how views on strategy have changed over time;
be familiar with some of the key questions and terminology in strategy;
understand the debates that surround corporate values and social responsibility;
gain familiarity with the challenges of strategy making in not-for-profit organizations;
comprehend the basic approach to strategy that underlies this book.
Since the purpose of strategy is to help us to understand success, we start by looking at the role that strategy has played in enabling
individuals to achieve their goals. Our Opening Case provides a brief outline of two different success stories: Lady Gaga?s attainment of
celebrity status and Jeff Bezos?s building of Amazon. These two individuals working in very different fields offer fascinating insights
into the foundations of success and the nature of strategy.
Opening Case
Strategy and success: Lady Gaga and Jeff Bezos
Lady Gaga
Stefani Joanne Angelina Germanotta, better known as Lady Gaga, is the most successful popular entertainer to emerge in the
21st century. Her three albums, The Fame, released August 2008,Born This Way, released May 2011, and Artpop, released
November 2013, sold a total of 26 million copies by the end of 2013. Her Monster Ball completed a 2009 concert world tour
that grossed $227.4 million (the highest for any debut artist). She has earned five Grammy music awards and 13 MTV video
music awards and places on Forbes? listings of The World?s 100 Most Powerful Women (though some way behind German
Chancellor Angela Merkel).
Since dropping out of NYU?s Tisch School of the Arts in 2005, she has shown total commitment to advancing her career as an
entertainer and developing her Lady Gaga persona. Gaga?s music is an appealing pastiche of Seventies glam, Eighties disco
and Nineties Europop. One music critic, Simon Reynolds, described it as, ?ruthlessly catchy, noughties pop glazed with AutoTune and undergirded with R&B-ish beats?.1 Her songs embody themes of stardom, love, religion, money, identity, liberation,
sexuality and individualism.
However, music is only one element in the Lady Gaga phenomenon ? her achievement is based less upon her abilities as a
singer or songwriter and more upon her establishing a persona which transcends pop music. Like David Bowie and Madonna
before her, Lady Gaga is famous for being Lady Gaga. The Gaga persona comprises a multimedia, multifaceted offering built
from an integrated array of components that include her music, her stunning visual appearance, newsworthy events,
distinctive social attitudes, her personality and a set of clearly communicated values. Key among these is visual impact and
theatricality. Lady Gaga?s outfits have set new standards in eccentricity and innovation. Her dresses ? including her plastic
bubble dress, meat dress and ?decapitated-corpse dress? ? together with weird hairdos, extravagant hats and extreme
footwear (she met President Obama in 16-inch heels) ? are as well-known as her hit songs, and her music is promoted
through visually stunning videos that combine fantasy, sex, sadism and science fiction. The variety of visual images she
projects is such that her every appearance creates a buzz of anticipation as to her latest incarnation.
Lady Gaga has established a business model that recognizes the realities of the post-digital world of entertainment. Like Web
2.0 pioneers such as Facebook and Twitter, Gaga has followed the dictum ?first build market presence then monetize that
presence?. She builds market presence through a range of online channels: her website, YouTube, Facebook and Twitter.
With 2.8 billion YouTube views, 64 million Facebook fans and 41 million Twitter followers, she is outranked in online
presence only by Justin Bieber and Katy Perry. Her emphasis on visual imagery reflects the ways in which her fame is
converted into revenue. Music royalties are dwarfed by her concert earnings. Her other revenue sources ? merchandizing
deals, endorsements and product placements ? are also linked to her market presence.
Figure 1.1 Common elements in successful strategies.
3. Objective appraisal of resources.
a. In positioning herself as a celebrity performance artist, Lady Gaga has exploited her talents in relation to design, creativity,
theatricality and self-promotion while astutely augmenting these skills with capabilities she has assembled within her Haus of Gaga.
b. Jeff Bezos?s leadership of Amazon has exploited his talent as a business and technological visionary and his attributes of persistence
and ruthlessness while bringing in the technical, logistical and merchandising know-how that he lacked.
4. Effective implementation.
a. Without effective implementation, even the best-laid strategies are likely to flounder. The ability of Lady Gaga and Amazon to beat
the odds and establish outstanding success owes much to their leaders? determination and ability to encourage collaboration and
commitment from others.
These observations about the role of strategy in success can be made in relation to most fields of human endeavour. Whether
we look at warfare, chess, politics, sport or business, the success of individuals and organizations is seldom the outcome of a
purely random process. Nor is superiority in initial endowments of skills and resources typically the determining factor.
Strategies that build on the basic four elements almost always play an influential role.
Look at the ?high achievers? in any competitive area. Whether we review the world?s political leaders, the CEOs of the Fortune
500 or our own circles of friends and acquaintances, those who have achieved outstanding success in their careers seldom
possessed the greatest innate abilities. Success has gone to those who combine the four strategic factors mentioned above.
They are goal focused; their career goals have taken primacy over the multitude of life?s other goals ? friendship, love, leisure,
knowledge, spiritual fulfilment ? which the majority of us spend most of our lives juggling and reconciling. They know the
environments within which they play and tend to be fast learners in terms of understanding the keys to advancement. They
know themselves in terms of both strengths and weaknesses. And they implement their career strategies with commitment,
consistency and determination. As the late Peter Drucker observed: ?We must learn how to be the CEO of our own careers.? 4
There is a downside, however. Focusing on a single goal may lead to outstanding success but may be matched by dismal
failure in other areas of life.
Many people who have reached the pinnacles of their careers have led lives scarred by poor relationships with friends and
families and stunted personal development. These include Howard Hughes and Steve Jobs in business, Richard Nixon and
Joseph Stalin in politics, Marilyn Monroe and Elvis Presley in entertainment, Joe Louis and O. J. Simpson in sport and
Bobby Fischer in chess. Fulfilment in our personal lives is likely to require broad-based lifetime strategies.5
A brief history of strategy
Origins
Enterprises need business strategies for much the same reasons that armies need military strategies: to give direction and
purpose, to deploy resources in the most effective manner and to coordinate the decisions made by different individuals.
Many of the concepts and theories of business strategy have their antecedents in military strategy. The term ?strategy? derives
from the Greek word strategia, meaning ?generalship?. However, the concept of strategy did not originate with the Greeks. Sun
Tzu?s classic The Art of War, written in about 500 BC, is regarded as the first treatise on strategy.6
Military strategy and business strategy share a number of common concepts and principles, the most basic being the
distinction between strategy and tactics. Strategy is the overall plan for deploying resources to establish a favourable position;
a tactic is a scheme for a specific action. Whereas tactics are concerned with the manoeuvres necessary to win battles, strategy
is concerned with winning the war. Strategic decisions, whether in military or business spheres, share three common
characteristics:
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they are important;
they involve a significant commitment of resources;
they are not easily reversible.
Case Insight 1.2
Strategy versus tactics
A key lever for Amazon to drive sales growth was its shipping charges. During the 2000 and 2001 holiday seasons, Amazon began
offering free shipping (initially to customers placing orders of a $100 or more). Such cuts in shipping costs were tactical measures ? they
could be introduced and withdrawn at relatively short notice, and while they were effective at boosting sales, they did not necessitate
significant resource commitments. The introduction of Amazon Prime in 2005 was different. In charging a $79 fee to cover 12 months
for free express delivery Amazon was, first, making a commitment for a year, second, it shifted consumers? behaviour: members of
Prime had a huge incentive to maximize their purchases from Amazon, which then gave Amazon an incentive to broaden its range of
merchandise. Prime was a strategic initiative.
The evolution of business strategy
The evolution of business strategy has been driven more by the practical needs of business than by the development of theory.
During the 1950s and 1960s, senior executives were experiencing increasing difficulty in coordinating decisions and
maintaining control in companies that were growing in size and complexity. Financial budgeting, in the form of annual
financial planning and investment appraisal, provided short-term control and aided project selection but did little to guide
the long-term development of the firm. Corporate planning (also known as long-term planning) was developed during the late
1950s to serve this purpose. Macroeconomic forecasts provided the foundation for the new corporate planning. The typical
format was a five-year corporate planning document that set goals and objectives, forecast key economic trends (including
market demand, market share, revenue, costs and margins), established priorities for different products and business areas
of the firm and allocated capital expenditures. The diffusion of corporate planning was accelerated by a flood of articles and
books addressing this new science.7 The new techniques of corporate planning proved particularly useful for developing and
guiding the diversification strategies that many large companies were pursuing during the 1960s. By the mid-1960s, most
large US and European companies had set up corporate planning departments.
During the 1970s and early 1980s, confidence in corporate planning and infatuation with scientific approaches to
management were severely shaken. Not only did diversification fail to deliver the anticipated synergies but also the oil shocks
of 1974 and 1979 ushered in a new era of macroeconomic instability, combined with increased international competition
from resurgent Japanese, European and Southeast Asian firms. Faced with a more turbulent business environment, firms
could no longer plan their investments, new product introductions and personnel requirements three to five years ahead,
simply because they couldn?t forecast that far.
The result was a shift in emphasis from planning to strategy making, where the focus was less on the detailed management of
companies? growth paths than on positioning the company in markets and in relation to competitors in order to maximize
the potential for profit. This transition from corporate planning to what became termed strategic management was associated
with increasing focus on competition as the central characteristic of the business environment and competitive advantage as
the primary goal of strategy.
The emphasis on strategic management also directed attention to business performance. During the late 1970s and into the
1980s, attention focused on sources of profit within the industry environment. Michael Porter of Harvard Business School
pioneered the application of industrial organization economics to analysing industry profitability.8 Other studies focused on
how profits were distributed between the different firms in an industry ? in particular the impact of market share and
experience upon costs and profits.9
During the 1990s, the focus of strategy analysis shifted from the sources of profit in the external environment to the sources
of profit within the firm. Increasingly, the resources and capabilities of the firm became regarded as the main source of
competitive advantage and the primary basis for formulating strategy.10 This emphasis on what has been called the resourcebased view of the firm (a theoretical perspective that highlights the role of resources and capabilities as the principal basis for
a firm?s strategy) represented a substantial shift