Strategic Logic

Strategic Logic lays the foundations for a clear understanding of corporate profitability and provides the reader with innovative insights on how to develop original yet realistic strategies. Working with real-life examples and based on rigorous theory, t

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General Adviser: Professor Christian Pinson, INSEAD

STRATEGIC LOGIC J. Carlos Jarillo

© J. Carlos Jarillo 2003 Softcover reprint of the hardcover 1st edition 2003 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2003 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-51126-6

ISBN 978-0-230-59814-0 (eBook)

DOI 10.1057/9780230598140 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Editing and origination by Aardvark Editorial, Mendham, Suffolk 10 9 8 7 6 5 4 3 2 1 12 11 10 09 08 07 06 05 04 03

To Arantxa and Rosi

CONTENTS

List of figures

x

Acknowledgements

xii

Introduction

1

Part I Chapter 1

Chapter 2

The Essential Elements of Strategic Logic

11

The Basic Principles

13

The Balance of Supply and Demand (or Why Some Companies can Hardly Find Clients and Others Cannot Produce Fast Enough) Why Supply Sometimes Cannot Follow Demand When the Product (or Service) is Truly Unique A False Dichotomy The Entry-deterring Price Rivalry Conclusion

14 16 18 31 33 33 38

The Nuclear Unit of Strategic Analysis When a Sector is Not a Sector An Example: The Activities of the Personal Computer Sector Finding the Sources of Profitability Inside the Company How to Make a Correct Competitive Analysis Another Source of Profitability: Reorganization of the Industry Conclusion

Chapter 3

Industry Evolution A Methodology of Predictive Analysis Technological Change, the First Motor of Industry Change Changes in Regulation Changes in Demand Direct Change and Induced Change New Technologies and Strategic Logic From Evolution to Creation: Application of Strategic Logic to New Businesses Evolving Strategies: the Erosion of Entry Barriers

41 42 44 50 55 58 61 64 65 67 72 73 76 77 83 89

vii

Contents

viii

From Momentary Inspiration to Permanent Business Conclusion

91 92

P