B AD final

What is the strategy components framework?

A framework stating that competitive advantage comes from the fit among six strategy components, not from one isolated strategy.

What question does the customer component answer?

“Who is our customer?”

What does the customer component include?

• Target customers

• Market segments

• Customer needs

• Who the firm will NOT serve

What question does the product component answer?

“What defines our products/services?”

What does the product component include?

• Product design

• Quality

• Pricing

• Positioning

• Sales channels

• CRM

• Technology roadmap

What is the finance component?

The firm’s profit formula and financial strategy.

What does finance component include?

• Profit margins

• Sales volume

• Revenue logic

• Capital expenditures

• Financing strategy

What is the operations component?

Internal capabilities needed to deliver the value proposition.

Operations component capabilities

• Technical capabilities

• Management capabilities

• Culture

• Efficiency systems

What is the partner component?

Relationships with external organizations that provide capabilities.

What can partners include?

• Suppliers

• Contractors

• Government agencies

• Strategic alliances

  • Rivals

What is the competitor component?

Strategies for dealing with rivals and protecting competitive advantage.

What does competitor component include?

• Competitive positioning

• Defensive strategies

• Barriers to entry

• Competitive signaling

What is strategic fit?

Alignment and reinforcement among strategy components.

Why is strategic fit important?

Competitive advantage comes from cohesive reinforcing choices.

What creates a value proposition?

Alignment between customer and product components.

Which components are internally focused?

• Product

• Finance

• Operations

Which components are externally focused?

• Customer

• Competitor

• Partner

How does threat of new entrants affect strategy?

When entry threat is high, firms may focus on the customer or product components by building loyalty, increasing switching costs, filling underserved niches, or differentiating their products.

What happens when rivalry is intense?

Firms often focus on:

• Operational efficiency

• Cost reduction

• Acquisitions

What happens when buyers are powerful?

Firms may create cooperative partnerships.

What happens when suppliers are powerful?

When buyers or suppliers have power, firms often focus on the partner component. The goal is to turn a price-based negotiation into a cooperative relationship where both sides create value.

What happens when substitutes are strong?

Firms need to better understand why customers value their product. They may adjust their product, marketing, positioning, or differentiation.

What are the macroenvironment categories?

• Macroeconomic

• Technological

• Demographic

• Societal

• Ecological

• Political/legal

What are the six strategy components?

The six components are customer, product, finance, operations, partner, and competitor. Together, they answer who the firm serves, what it offers, how it makes money, what capabilities it needs, who it works with, and how it handles rivals.

Why are customer and product components connected?

Together, they create the value proposition. A product only creates value if it fits what the target customer wants. If the customer and product components are misaligned, the strategy fails.

Why is Apple a strong example of strategic fit?

Apple targets professionals and creatives, offers premium integrated products, prices at a premium, builds design and marketing capabilities, uses manufacturing partners, and creates switching costs through its ecosystem. None of those choices alone explains Apple’s success; the advantage comes from how they fit together

What is the difference between a business model and the strategy components framework?

A business model explains how a company works overall, while the strategy components framework focuses specifically on strategic choices and how they interact. The framework is more useful for analyzing competitive advantage.

What is the main idea of the environmental conditions article?

Strategies only work when they fit the environment. A strategy that works in one industry may fail in another because industries have different cost structures, regulations, customer behavior, rivalry, and technological conditions.

What is environmental fit?

Environmental fit means a firm’s strategy components match the realities of its industry and macroenvironment. Good strategy requires understanding what the environment allows or limits.

What are Porter’s Five Forces?

The five forces are threat of new entrants, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. These forces affect industry profitability and shape which strategy components firms should focus on.

How do technological conditions matter?

It can change gradually or through major discontinuities. During a discontinuity, old strategies may stop working completely. Kodak is an example because it failed to adapt to digital photography even though it had digital technology.

How do demographic and societal conditions matter?

It changes shift demand, such as aging populations increasing demand for home healthcare. Societal trends also change customer preferences, such as interest in organic foods or socially aware brands.

What is strategy calibration?

Strategy calibration is the process of adjusting strategy components so they fit together and fit the environment. When one component changes, the others may need to change too.

Why is calibration necessary?

A new strategy can create cascading effects. For example, if a tax firm adds consulting services, it changes the product component, but it may also require new customers, new operations, new partners, new pricing, and new ways to handle competitors.

What are the four guidelines for calibrating strategy components?

Start with the most important component, visit every component, look for new options created by strategic choices, and try many paths

What does “begin with the most salient strategy component” mean?

Start with the component that is most relevant to the problem or opportunity. If profits are falling, start with finance. If customer demand is shifting, start with customer. If a new rival appears, start with competitor.

Why should strategists visit every component?

Because strategy components are interdependent. A product change may require new capabilities, new partners, different pricing, or a new competitive response. If you skip a component, you may miss a constraint.

What does “look for new options” mean?

Some choices create new possibilities. Building a new capability might open up new products. Improving cash flow might allow new investments. Strategy calibration is not only about solving problems; it can reveal opportunities.

What does “try many paths” mean?

The first strategy path may not work. A firm may need to start from another component and rethink the strategy. Good strategists test multiple combinations before settling on the best fit.

What is customer-focused calibration?

It starts with customer research. The firm identifies segments, desired features, product positioning, competitors, capabilities, demand, costs, prices, and financial projections.

What is finance-focused calibration?

It starts with financial performance. If revenue is low, the firm may adjust the value proposition. If costs are high, it may adjust operations or partners.

What is competitor-focused calibration?

It starts with rivals. The firm identifies current and potential competitors, compares value propositions and capabilities, then decides whether to differentiate, reposition, exit a segment, or strengthen capabilities.

What is resource-focused calibration?

It starts with the firm’s resources and capabilities. The goal is to identify resources that are valuable, rare, and hard to imitate, then build strategies around them.

What is the biggest takeaway from calibration?

Strong strategy is iterative. You keep adjusting components until the whole system fits and produces better performance.

What is co-opetition?

Co-opetition is when competitors both compete and cooperate. Rivals may work together when cooperation helps reduce costs, share risks, increase demand, set standards, or access capabilities.

Why do rivals cooperate?

They may cooperate because a project is too expensive, risky, or complex for one firm alone. They may also have complementary strengths, or one firm may be able to provide something valuable to another at the right price.

What is the first question firms should ask before cooperating with a rival?

“What happens if we do not cooperate?” Firms should consider whether the rival will partner with someone else, whether the status quo is realistic, and whether saying no creates a worse outcome.

What does “special sauce” mean?

“Special sauce” means a firm’s unique competitive advantage, such as technology, know-how, brand, customer base, or capabilities. Cooperation becomes risky when it requires sharing that advantage.

What are the four special-sauce cooperation situations?

• Neither party risks special sauce, but together they create value.

• Both parties share strengths and move ahead of common rivals.

• One stronger party shares an advantage, making itself even stronger.

• One party shares its special sauce to reach another’s customer base, but risks dependency or imitation.

What is the main risk of co-opetition?

The firm may strengthen a rival, lose control of valuable knowledge, become dependent, or weaken its own competitive position.

What are antitrust concerns in co-opetition?

Cooperation becomes illegal when rivals coordinate prices, divide markets, or reduce competition. Regulators are more accepting when cooperation lowers costs, improves quality, expands demand, or benefits customers.

How should firms structure co-opetition agreements?

They should define scope, control, costs, benefits, and exit options. Limited cooperation is easier to manage. Deeper cooperation becomes harder when firms must share control or sensitive knowledge.

What is the main idea of “Competing on Platforms”?

Most companies will not own dominant platforms; they will depend on them. Platform-dependent firms must learn how to use platform resources while reducing the risks of platform power.

Why are platforms powerful?

Platforms control access to customers, set the rules, control algorithms, collect data, charge fees, and can favor their own products. The article describes platforms as gatekeeper, rule maker, judge, and jury.

Why is platform dependence risky?

The platform can change rules, raise fees, suspend sellers, copy successful products, control search rankings, or limit access to customers.

What happened with Amazon and Apple resellers?

Amazon made a deal with Apple that removed many refurbished Apple sellers from the platform. For some sellers, this destroyed their access to customers and threatened their businesses.

How do platforms limit a unique value proposition?

Platforms often force sellers into standardized listings, search terms, descriptions, reviews, and pricing systems. This makes it harder for firms to differentiate.

Why is customer relationship ownership important?

Platforms usually own the customer relationship. Sellers may not get full customer data or be allowed to contact customers directly. This creates dependence because the seller cannot fully build loyalty outside the platform.

What does it mean that platform-dependent firms lose room to maneuver?

They have fewer strategic choices. They cannot fully control pricing, presentation, customer data, ranking, or distribution. Their strategy is constrained by the platform.

Why can platforms become competitors?

Platforms can see which sellers and products are successful, then copy them or launch private-label versions. They can also use algorithms to favor their own offerings.

What is multihoming?

Multihoming means selling through multiple platforms or channels to reduce dependence on one platform.

What is platform multihoming?

Selling across multiple platforms, such as Amazon, Etsy, eBay, Walmart, iOS, Android, etc. It helps reach more customers and reduces dependence, but requires customization and effort.

What is channel multihoming?

Using non-platform channels, like a company website, physical store, loyalty program, or direct customer relationship.

What is the goal of changing channels?

To reduce platform dependence, protect the value proposition, access customers directly, and avoid being trapped by one platform’s rules.

What should platform-dependent businesses try to do overall?

Use platforms for reach and growth, but avoid becoming completely dependent. They should protect differentiation, build direct customer relationships, diversify channels, and reduce the platform’s ability to control their business.

How does traditional strategy define success?

targeting attractive markets

building competitive advantage

creating unique value or lower costs

protecting positions from imitation

What problem is seen with traditional strategy?

Sustaining a strong market position is not enough to drive stock growth forever. Investors want evidence that a company can continue discovering new value-creating opportunities

Why is growth dangerous according to Michael Porter?

• blur uniqueness

• reduce strategic fit

• create compromises

• weaken competitive advantage

What is a corporate theory?

It explains how a company creates value across businesses, assets, and opportunities. It guides future strategic choices rather than just defending one position.

Why is a corporate theory important?

It helps firms:

• identify valuable opportunities

• guide acquisitions

• combine assets effectively

• create long-term growth

• avoid random strategic decisions

What does the “blind explorer on a mountain range” analogy mean?

Strategists cannot fully see which combinations of assets and capabilities will create value. They use theories to make educated guesses about where opportunities exist.

What is complementarity?

Complementarity means assets become more valuable when combined together.

What is foresight?

Predictions about:

• industry evolution

• customer demand

• technology

• competitor behavior

Why must foresight be unique?

: If everyone shares the same foresight:

• assets become expensive

• opportunities disappear

• no sustainable advantage exists

What is insight?

Deep understanding of a company’s unique capabilities, resources, and assets.

Why is insight company-specific?

Competitive advantage comes from recognizing what your company uniquely does well.

What is cross-sight?

The ability to recognize complementary assets and opportunities that fit together.

How do foresight, insight, and cross-sight work together?

• foresight identifies future opportunities

• insight identifies unique capabilities

• cross-sight identifies complementary combinations

Value Creation Avenue

Increase customer willingness to pay.

Efficiency Avenue

Lower costs while maintaining value.

Pricing Avenue

Capture more value through pricing strategy.

Market Expansion Avenue

Grow by accessing new customers or markets.

Profitability Analysis

How strategy components influence revenues, costs, margins, and growth

Rivalry Reduction

Attempts to increase leverage over customers and suppliers and keep out new entrants.