At the beginning, she asks the business owners and senior executives from all over the world who participate in her highly regarded executive education course a powerful question: “Are you a strategist?” This question is not “What is strategy?” In order to answer the question, the term “strategy” should first be defined, then one can decide whether he or she is a strategist. She starts her course and book with a complex case study of a successful company. The management of the company faces a big challenge. The students put themselves in the shoes of that company’s management team and decide what to do.
Montgomery’s understanding of strategy is based on “perfect competition” or, in other words, strategy is protecting the company from the perfect competitive conditions.
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. In perfect competition, there are infinite buyers and sellers. There is no problem in supply and demand. Again, in perfect competition, there are no entry and exit barriers. Therefore anybody can easily enter the market and exit when it is necessary. There is perfect information. Prices and the quality of products are assumed to be known to all consumers and producers. The products are homogeneous, they don’t vary across suppliers.
According to Montgomery, it is best to be far and away from perfect competition markets. In a market of standard products and an unlimited number of suppliers, the one who can differentiate the product and the company can win the game. This strategy requires unique products and a strong brand identity. The increase in the numbers of suppliers decreases the risk in the supply. Plentiful supply makes it easy to procure supplies at a reasonable cost. If the power of the customer is low, it is a great advantage for a company. In this type of market, products are scarce, highly differentiated and important to customers’ well-being -- in other words, indispensable. In these markets, companies can create strong brands. If barriers to entry and exit to the market are high, it is favorable. In these markets, entry requires economies of scale, product differentiation and high capital investment. So competition becomes limited. When the availability of substitute products is low, the company has a very good advantage because the customers have few or no choices for alternative products that could meet their needs with comparable prices. According to Montgomery, first we must understand the competitive forces in our industry. How we respond to them is our strategy. That means if we don’t understand, our strategy is based on luck and hope. Second, even if we understand our industry’s competitive forces, we must find a way to deal with them that is up to the challenge. This may mean skillful positioning, deliberate efforts to counter negative forces or exploit favorable ones, or even a timely exit.
Third, whatever we do, don’t underestimate the power of these forces. Their impact on the destiny of your business may well be as great as your own. This book, which Montgomery wrote to follow the path of the Harvard Business School course program, can make you a student of the Harvard Business School while reading.