Chapter

The Structure of Strategy

John Kay

in The Business of Economics

Published in print October 1996 | ISBN: 9780198292227
Published online November 2003 | e-ISBN: 9780191596520 | DOI: http://dx.doi.org/10.1093/0198292228.003.0006
 The Structure of Strategy

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The successful strategy of a firm originates in the requisite match between its internal capabilities and its external relationships. This is the basis of its ability to add value, i.e. to create an output that is worth more than the cost of the inputs it uses. To achieve this, these capabilities need to be distinctive (not easily replicated by other companies), sustainable (persist over time), and appropriable (to principally benefit the company that holds them). There are three broad categories of such distinctive capabilities. “Architecture” refers to a network of relationship contracts within or around the firm. It adds value by helping to create organizational knowledge and routines that enable the company to respond flexibly to changing circumstances and allow easy exchanges of information. The second is “reputation” which is the main commercial mechanism for conveying information to purchasers of complex commodities. Finally, by protecting and exploiting “innovation”, the company can derive a third distinctive capability, given that it can appropriate the gains associated with it.

Keywords: added value; architecture; core competencies; distinctive capabilities; innovation; network; organizational knowledge; reputation; resources; strategy

Chapter.  6842 words. 

Subjects: Microeconomics

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