Running head EXTERNAL ENVIRONMENT SCAN—APPLE .docx

Running head: EXTERNAL ENVIRONMENT SCAN—APPLE
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EXTERNAL ENVIRONMENT SCAN—APPLE
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External Environment Scan—Apple
An environmental scan is vital for every company as it
helps to determine the threats and opportunities that are posed
to the company. The following will be included in the
environment scan of Apple incorporated: economic factors,
political factors, legal factors, societal factors, technological
factors, geographic factors and Porter’s five forces.
Key Factors and Trends
The economic environment of the company is determined
by factors such as taxation policies, exchange rate, inflation, the
economy, living standards, the average income and consumer
buying power. Apple’s products main target market are people
of medium to high income and standards. In an economic boom,
the company’s products are more likely to be bought than
during a recession. The rapid growth of developing countries
provide an opportunity for Apple to venture into new markets.
Political stability can be a threat to Apple’s products. Poor
political stability would mean a reduction in sales and
distribution of the products would be hard as trade barriers
would be imposed. Various trade policies that could be imposed
on a country would have an adverse effect on the company’s
sales. However, developing countries create an opportunity for
Apple expand its customer base as more free trade policies are
put into effect. As Lombardo (2015) states, “Additional free
trade policies increase the opportunities for Apple to distribute
more of its products to various markets around the world”
(section 2).
Social-cultural factors, such as lifestyle, living standards,

and demographics important to Apple. Social factors have an
effect on consumer behavior and expectations. The increase in
mobile phone use and social media is an opportunity for Apple
to provide easy-to-use smart phones.
Current technology and technological changes can affect a
customer’s priorities changing the demand for Apple products.
For example, with the increasing popularity of Cloud
computing, Apple can use that to bring in customers and retain
their existing customers. Apple has taken advantage of this by
making it so that information can be transferred between the
different apple devices and between family members.
“Everything’s better when shared, and sharing has never been
easier” (Apple, 2016, section 3).
Legal factors can also create a threat to Apple. As governments
become more aware of privacy issues in relation to digital
technology, stricter regulations are imposed on companies like
Apple. This poses a threat to Apple as they are now required to
develop a product that not only meets consumer demand, but
also the privacy regulations imposed by the government.
Stricter regulations have been implemented on
telecommunications therefore increasing threats to Apple.
These regulations can limit the usability of the products.
Apple has an opportunity to expand their geographical
boundaries making their products readily available to more
individuals around the globe. New technology has reduced
geographical boundaries to nothing allowing more people access
to their products.
Porter’s Five Forces
Porter’s five forces is a model “identifies and analyzes 5
competitive forces that shape every industry, and helps
determine an industry's weaknesses and strengths”
(Investopedia, 2016, para. 1). Apple’s five force analysis will
aide in giving insight about the external factors that may affect
the company. Porter’s five forces are supplier power, buyer
power, competitive rivalry, threat of substitution, and threat of
new entry.

Supplier Power
Apple’s suppliers have weak bargaining power toward the
company due to the availability of suppliers around the world.
The company also has a high level of supply for most of its
components. “This condition makes individual suppliers weak
in imposing their demands on firms like Apple” (Ferguson,
2015, section 5).
Buyer Power
The bargaining power of Apple’s customer is strong because the
costs incurred when switching from one brand to another is low.
However, an individual buyer generally only buys iPhone
therefore they have a very small effect on the company’s sales.
Competitive Rivalry
Apple faces a strong force of rivalry from competitors such as
Samsung, LG, and Blackberry. Their competitors aggressively
compete for the market through rapid innovation, aggressive
advertising and imitation. Another threat to Apple is the low
cost of switching between brands. A customer can easily
convert from an Apple Product to a Samsung product or other
competing brand. According to Ferguson (2015), “this part of
the Five Forces analysis shows that competitive rivalry is
among the most significant considerations in Apple’s strategic
formulation” (section 3).
Threat of Substitution
Substitute products have a weak force in attracting Apple’s
customers. While there are several substitute products in the
market, they tend to have low performance and few features.
Due to the advanced features of Apple products, many
customers would prefer Apple products. Therefore, substitutes
have little to no effect on the Apple.
Threat of New Entry
New entrants into the industry have a weak force toward
Apple. New competitors into the market would face challenges
such as high capital and high cost of brand development to
achieve the level brand establishment that Apple has. However,
companies such as Samsung and Google have the financial

capacity to enter the market and competing directly against
Apple. The threat of new entrants should be considered to be of
moderate threat to the company.
References
Apple. (2016). iCloud. Retrieved from
http://www.apple.com/icloud/family-sharing/
Ferguson, E. (2015). Apple Inc. Five Forces Analysis (Porter’s
Model). Retrieved from http://panmore.com/apple-inc-five-
forces-analysis-porters-model-case-study
Investopedia. (2016). Porter’s 5 Forces. Retrieved from
http://www.investopedia.com/terms/p/porter.asp
Lombardo, J. (2015). Apple Inc. PESTEL/PESTLE Analysis &
Recommendations. Retrieved from http://panmore.com/apple-
inc-pestel-pestle-analysis-recommendations
Running head: APPLE MARKET ANALYSIS
1
APPLE MARKET ANALYSIS
4
Apple Market Analysis
Introduction
Apple Incorporation is an American based multinational
company that designs and manufactures consumer electronics,
software, and commercial servers and distributes digital media
content. The company’s major products include the iPhone,
iPad, iPod, and Macintosh computers. Apple has established
itself as a leading manufacturer of consumer electronics and
media sales.
Customer
The target customer for the IPhone includes teenagers,
college and university students, businessmen, kids, and adults.
Teenagers use the iPhone to socialize, access the internet and
social media and to listen to music. College and university

students on the other hand use the iPhone to record notes in a
well-organized format. The iPhone has a business quality that
business people find very useful. Apple products allow
businessmen to communicate and send documents to customers
easily. Learning game apps are downloaded on apple devices
which are given to kids and can aide in teaching young children.
For adults, the iPhone allows them to make calls, get directions,
view documents, take pictures, and connect to the internet. As
Saini (n.d.) points out, Apple products are built to suit every
age group.
Many of the iPhone customers chose the phone because
they wanted a phone that is easy to use, has a media player,
good applications, ability to take good pictures and videos.
Teenagers for example, want a device that can allow them to
play music, access the internet and allow them to have gaming
apps. College students want a phone that is light and easy to
carry and can assist them with taking notes and staying
organized. Business people want a device that simplifies their
business activities. Adults on the other hand want a phone that
makes their life easier and allows them to communicate
effectively.
The iPhone is able to satisfy all the above wants. It is
mobile, lightweight, produces quality pictures and videos. The
phone also has good applications and operating system allowing
individuals to easily access social media and the internet. The
business system of the phone allows for one to carry out
business activities easily. The phone allows one to communicate
effectively through calls and text message as well as through
the email.
Competitor Analysis
Out of all of the smartphone manufactures, the IDC (2015)
ranks Apple number two. Apple’s biggest competitor is
Samsung with other competitors being Motorola, Nokia, and
Lenovo. The features offered by Apple are what sets it apart
from its competitors. The Apple brand is very strong and has
brand loyalty from their customers.

The company’s strengths include the fact that the company is a
leader in innovation and technology. The company has excellent
brand loyalty from their customers, many of them own multiple
Apple products. Apple also benefits from the fact that the
company has its own operating system, which they use in their
products. All the applications used in apple devices are
produced by Apple Inc. allowing them to increase their sales.
As Sun (2015) states, “if customers want to remain within
Apple's ecosystem and keep their digital purchases, they must
continue buying iOS devices” (para. 4).
Competitive Advantage/Sustainability
Vertical integration has given Apple a competitive advantage.
They owns chip manufacturers, control manufacturing, follow
strict software standards, and operates in a nearly closed
ecosystem of proprietary retail stores. Utilizing vertical
integration, Apple has more control of its value chain and its
component costs than their competitors.
Apple also has a strong brand appeal that gives it a competitive
advantage. Despite having some low specifications, the iPhone
is sold at more expensive prices than other brands with better
specifications. “Apple is also one of the few electronics brands
to be considered a luxury brand” (Sun, 2015, para 9). Unless
the competitors can match the brand appeal, they are less likely
to make more sales.
Consumer Wants/Needs Chart
Apple
Samsung
HTC
Blackberry
Nokia
OS
2
2
2

2
2
Screen Size
1
2
1
1
2
RAM
1
2
1
1
1
Storage
2
2
2
2
2
Camera
2
2
2
2
2
Weight
2
1
1
1
1
Processor
1
1
1

1
1
Media Player
2
2
2
2
2
APP’s
2
1
1
1
1
Key:
0 = need not met
1 = need partially met
2 = need fully met
References
IDC. (2015). Smartphone Vendor Market Share, 2015 Q2.
Retrieved from http://www.idc.com/prodserv/smartphone-
market-share.jsp
Saini, J. (n.d.). Apple Inc.’s Target Market. Retrieved from
http://appleinccasestudy.weebly.com/apples-target-market.html
Sun, L. (2015). Apple Inc.'s Sustainable Competitive
Advantages. Retrieved from
http://www.fool.com/investing/general/2015/05/18/apple-incs-
sustainable-competitive-advantages.aspx
BR
NOVEMBER-DECEMBER 1996

I. Operational Effectiveness Is Not Strategy
What Is Strategy r
For almost tv̂ fo decades, managers have been
learning to play by a new set of rules. Companies
must be flexible to respond rapidly to compet-
itive and market changes. They must benchmark
continuously to
achieve best prac-
tice. They must
outsource aggres-
sively to gain ef-
ficiencies. And
they must nur-
ture a few core eompetencies in the by Michael
race to stay ahead of rivals.
Positioning-once the heart of strategy-is reject- !
ed as too static for today's dynamic markets and
changing technologies. According to the new dog-
ma, rivals can quickly copy any market position,
and competitive advantage is, at hest, temporary.
But those beliefs are dangerous half-truths, and
they are leading more and more companies down
the path of mutually destructive competition.
True, some barriers to competition are falling as
regulation eases and markets become global. True,
companies have properly invested energy in beeom-
ing leaner and more nimble. In many industries,
however, what some call hypcrcompetition is a
self-inflicted wound, not the inevitahle outcome of
a changing paradigm of competition.

The root of the problem is the failure to distin-
guish between operational effeetiveness and strat-
egy. The quest for productivity, quality, and speed
has spawned a remarkable number of management
tools and techniques: total quality management,
benchmarking, time-based competition, outsourc-
ing, partnering,
rcungineer'ing,
change manage-
ment. Although
the resulting op-
erational improve-
ments have often
E. Porter ^^^^ dramatic, many companies have
been frustrated hy their inability to
translate those gains into sustainahle profitahility.
And hit by bit, almost imperceptibly, management
tools have taken the place of strategy. As manag-
ers push to improve on all fronts, they move farther
away from viable competitive positions.
Operational Effectiveness:
Necessary but Not Sufficient
Operational effectiveness and strategy are both
essential to superior performance, wbich, after all,
is the primary goal of any enterprise. But they work
in very different ways.
Michael E. Porter is the C. Roland Chiistensen Professor
of Business Adminislralion at the Harvard Business
School in Boston, Massachusetts.

HARVARD BUSINESS REVIEW N,)vt;mbt;r-D(.ct;mbi;r 1996
61
high
O
A company can outperform rivals only if it can
establish a difference that it can preserve. It must
deliver greater value to customers or create compa-
rable value at a lower cost, or do both. The arith-
metic of superior profitability then follows: deliver-
ing greater value allows a company to charge higher
average unit prices; greater efficiency results in
lower average unit costs.
Ultimately, all differences between companies in
cost or price derive from the hundreds of activities
required to create, produce, sell, and deliver their
products or services, such as calling on customers,
assembling final products, and training employees.
Cost is generated by performing activities, and cost
advantage arises from performing particular activi-
ties more efficiently than competitors. Similarly,
differentiation arises from both the choice of activi-
ties and how they are performed. Activities, then,
are the hasic units of competitive advantage. Over-
all advantage or disadvantage results from all a
company's activities, not only a few.'
Operational effectiveness (OE) means performing
similar activities better than rivals perform them.
Operational effectiveness includes but is not limit-

ed to efficiency. It refers to any number of practices
that allow a company to better utilize its inputs by,
for example, reducing defects in products or devel-
oping better products faster. In contrast, strategic
positioning means performing different activities
from rivals' or performing similar activities in dif-
ferent ways.
Differences in operational effectiveness among
companies are pervasive. Some companies are able
A company can outperform
rivals only if it can establish
a difference that it can preserve.
to get more out of their inputs than others because
they eliminate wasted effort, employ more ad-
vanced technology, motivate employees better, or
have greater insight into managing particular activ-
ities or sets of activities. Such differences in opera-
Operational Effectiveness
Versus Strategic Positioning
Relative cost position
This article has benefited greatly from the assistance
of many individuals and companies. The author gives
special thanks to Ian Rivkin, the coauthor of a related
paper. Substantial research contributions have been
made by Nicolaj Siggelkovi/. Dawn Sylvester, and Lucia
Marshall. Tarun Khanna, Roger Martin, and Anita Mc-
Gahan have provided especially extensive comments.
tional effectiveness are an important source of dif-
ferences in profitability among competitors be-

cause they directly affect relative cost positions
and levels of differentiation.
Differences in operational effectiveness were at
the heart of the Japanese challenge to Western com-
panies in the 1980s. The Japanese were so far ahead
of rivals in operational effectiveness that they
could offer lower cost and superior quality at the
same time. It is worth dwelling on this point, be-
cause so much recent thinking about competition
depends on it. Imagine for a moment a productivity
frontier that constitutes the sum of
all existing best practices at any giv-
en time. Think of it as the maximum
value that a company delivering a
particular product or service can cre-
ate at a given eost, using the hest
availahle technologies, skills, man-
agement techniques, and purchased
inputs. The productivity frontier can
apply to individual activities, to groups of linked
activities such as order processing and manufactur-
ing, and to an entire company's activities. When a
company improves its operational effeetiveness, it
moves toward the frontier. Doing so may require
capital investment, different personnel, or simply
new ways of managing.
The productivity frontier is constantly shifting
outward as new technologies and management ap-
proaches are developed and as new inputs become
available. Laptop computers, mobile communica-
tions, the Internet, and software such as Lotus
Notes, for example, have redefined the produetivity

62 HARVARD BUSINESS REVIEW November-December 1996
WHAT IS STRATEGY?
frontier for sales-force operations and created rich
possibilities for linking sales with such activities as
order processing and after-sales support. Similarly,
lean production, which involves a family of activi-
ties, has allowed substantial improvements in
manufacturing productivity and asset utilization.
For at least the past decade, managers have been
preoccupied with improving operational effective-
ness. Through progratns such as TQM, time-based
competition, and benchmarking, they have changed
how they perform activities in order to eliminate
inefficiencies, improve customer satisfaction, and
achieve best practice. Hoping to keep up with
shifts in the productivity frontier, managers have
embraced continuous improvement, empowerment,
chan^t management, and the so-called learning
organization. The popularity of outsourcing and
the virtual corporation reflect the growing recogni-
tion that it is difficult to perform all activities as
productively as specialists.
As companies move to the frontier, they can often
improve on multiple dimensions of performance at
the same time. For example, manufacturers that
adopted the Japanese practice of rapid changeovers
in the 1980s were able to lower cost and improve
differentiation simultaneously. What were once be-
lieved to be real trade-offs - between defeets and

costs, for example - turned out to be illusions cre-
ated by poor operational effectiveness. Managers
have learned to reiect such false trade-offs.
Constant improvement in operational effective-
ness is necessary to achieve superior profitability.
However, it is not usually sufficient. Few compa-
nies have competed successfully on the basis of op-
erational effectiveness over an extended period, and
staying ahead of rivals gets harder every day. The
most obvious reason for that is the rapid diffusion
of best practices. Competitors can quickly imitate
management techniques, new technologies, input
improvements, and superior ways of meeting cus-
tomers' needs. The most generic solutions - those
that can be used in multiple settings--diffuse the
fastest. Witness the proliferation of OE techniques
accelerated by support from consultants.
OE competition shifts the productivity frontier
outward, effectively raising the bar for everyone.
But although such competition produces absolute
improvement in operational effectiveness, it leads
to relative improvement for no one. Consider the
$5 hillion-plus U.S. commercial-printing industry.
The major players-R.R. Donnelley Sk Sons Com-
pany, Quehecor, World Color Press, and Big Flower
Press-are competing head to head, serving all types
of customers, offering the same array of printing
technologies (gravure and weh offset}, investing
heavily in the same new equipment, running their
presses faster, and reducing crew sizes. But the re-
sulting major productivity gains are being captured
by customers and equipment suppliers, not re-
tained in superior profitability. Even industry-

Japanese Companies Rarely Have Strategies
The lapanese triggered a global revolution in opera-
tional effectiveness in the 1970s anij 1980s, pioneering
practices such as total quality management and con-
tinuous improvement. As a result, Japanese manufac-
turers enjoyed substantial cost and quality advantages
for many years,
But lapanese companies rarely developed distinct
strategic positions of the kind discussed in this article.
Those that did - Sony, Canon, and Sega, for example -
were the exception rather than the rule. Most Japanese
companies imitate and emulate one another. All rivals
offer most if nt)t all product varieties, features, and ser-
vices; they employ all channels and match one anoth-
ers' phint configurations.
The dangers of Japanese-style competition are now
becoming easier to recognize. In the 1980s, with rivals
operating far from the productivity frontier, it seemed
possible to win on both eost and quality indefinitely.
Japanese companies were all able to grow in an ex-
panding domestic economy and by penetrating global
tnarkets. They appeared unstoppable. But as the gap in
operational effectiveness narrows, Japanese compa-
nies are increasingly caught in a trap of their own
making. If they are to escape the mutually destmetive
battles now ravaging their performance, Japanese
companies will have to learn strategy.
To do so, they may have to overcome strong cultural
barriers. Japan is notoriously consensus oriented, and
companies have a strong tendency to mediate differ-
ences among individuals rather than accentuate them.

Strategy, on the other hand, requires hard choices. The
Japanese also have a deeply ingrained service tradition
that predisposes them to go to great lengths to satisfy
any need a customer expresses. Companies that com-
pete in that way end up blurring their distinct posi-
tioning, becoming all things to all customers.
This discussion of Japan is drawn from the authofs
research with Hirotaka Takeuchi, with help from
Mariko Sakakibara.
HARVARD BUSINESS REVIEW November-December 1996 63
WHAT IS STRATEGY?
leader Donnelley's profit margin, consistently
higher than 7% in the 1980s, fell to less than 4.6%
in 1995. This pattern is playing itself out in indus-
try after industry. Even the Japanese, pioneers of
the new competition, suffer from persistently low
profits. (See the insert "Japanese Companies Rarely
Have Strategies.")
The second reason that improved operational
effectiveness is insufficient - competitive conver-
gence-is more suhtle and insidious. The more
henchmarking companies do, the more they look
alike. The more that rivals outsource activities to
efficient third parties, often the same ones, the
more generic those activities hecome. As rivals im-
itate one another's improvements in quality, cycle
times, or supplier partnerships, strategies converge
and competition hecomes a series of races down
identical paths that no one can win. Competition

based on operational effectiveness alone is mutu-
ally destructive, leading to wars of attrition that
can he arrested only hy limiting competition.
The recent wave of industry consolidation
through mergers makes sense in the context of OE
competition. Driven by performance pressures but
lacking strategic vision, company after company
has had no hetter idea than to huy up its rivals. The
competitors left standing arc often those that out-
lasted others, not companies with real advantage.
After a decade of impressive gains in operational
effectiveness, many companies are facing dimin-
ishing returns. Continuous improvement has been
etched on managers' brains. But its tools unwitting-
ly draw companies toward imitation and homo-
geneity. Gradually, managers have let operational
effectiveness supplant strategy. The result is zero-
sum competition, static or declining prices, and
pressures on costs that compromise companies'
ability to invest in the business for the long term.
II. Strategy Rests on Unique Activities
Competitive strategy is about being different. It
means deliberately choosing a different set of activ-
ities to deliver a unique mix of value.
Southwest Airlines Company, for example, offers
short-haul, low-cost, point-to-point service he-
tween midsize cities and secondary airports in large
cities. Southwest avoids large airports and does
not fly great distances. Its eustomers include husi-
ness travelers, families, and students. Southwest's

frequent departures and low fares attract price-
sensitive customers who otherwise would travel hy
bus or car, and convenience-oriented travelers who
would choose a full-service airline on other routes.
Most managers describe strategic positioning in
terms of their customers: "Southwest Airlines
serves price- and convenience-sensitive travelers/'
The essence of strategy is
choosing to perform activities
differently than rivals do.
for example. But the essence of strategy is in the ac-
tivities - choosing to perform activities differently
or to perform different activities than rivals. Other-
wise, a strategy is nothing more than a marketing
slogan that will not withstand competition.
A full-service airline is configured to get passen-
gers from almost any point A to any point B. To
reach a large number of destinations and serve pas-
sengers with connecting flights, full-service air-
lines employ a hub-and-spokc system centered on
major airports. To attract passengers who desire
more comfort, they offer first-class or husiness-
class service. To accommodate passengers who
must change planes, they coordinate schedules and
check and transfer baggage. Because some passen-
gers will be traveling for many hours, full-service
airlines serve meals.
Southwest, in contrast, tailors all its activities
to deliver low-eost, convenient service on its par-
ticular type of route. Through fast turnarounds
at the gate of only 15 minutes. Southwest is able

to keep planes flying longer hours
than rivals and provide frequent de-
partures with fewer aircraft. South-
west does not offer meals, assigned
seats, interline baggage checking, or
premium classes of service. Auto-
mated ticketing at the gate encour-
ages customers to hypass travel
agents, allowing Southwest to avoid
their commissions. A standardized fleet of 737 air-
craft hoosts the efficiency of maintenance.
Southwest has staked out a unique and valuahle
strategic position based on a tailored set of activi-
ties. On the routes served by Southwest, a fuU-
64 HARVARD BUSINESS REVIEW November-Decemher 1996
service airline could never be as convenient or as
low cost.
Ikca, the global furniture retailer based in Swe-
den, also has a clear strategic positioning. Ikca tar-
gets young furniture buyers who want style at low
cost. Wbat turns tbis marketing concept into a stra-
tegic positioning is tbe tailored set of activities tbat
make it work. Like Southwest, Ikea has cbosen to
perform activities differently from its rivals.
Consider tbe typical furniture store. Showrooms
display samples of tbe mercbandise. One area
migbt contain 25 sofas; anotber will display five

dining tables. But tbose items represent only a frac-
tion of tbe cboices available to customers. Dozens
of books displaying fabric swatcbes or wood sam-
ples or alternate styles offer customers tbousands
of product varieties to cboose from. Salespeople
often escort customers tbrougb tbe store, answer-
ing questions and belping tbem navigate tbis maze
of cboices. Once a customer makes a selection, tbe
order is relayed to a tbird-party manufacturer. Witb
luck, tbe furniture will be delivered to tbe cus-
tomer's home witbin six to eigbt weeks. Tbis is
a value cbain tbat maximizes customization and
service but does so at bigh eost.
In contrast, Ikea serves customers wbo are
bappy to trade off service for cost. Instead of baving
a sales associate trail customers around tbe store.
Ikea uses a self-service model based on clear, in-
store displays. Ratber tban rely solely on tbird-
party manufacturers, Ikea designs its own low-cost,
modular, ready-to-assemble furniture to fit its posi-
tioning. In buge stores, Ikea displays every product
it sells in room-like settings, so customers don't
need a decorator to belp them imagine bow to put
tbe pieces togetber. Adjacent to tbe furnisbcd
sbowrooms is a warebouse section witb the prod-
ucts in boxes on pallets. Customers are expected to
do tbeir own pickup and delivery, and Ikea will
even sell you a roof rack for your car tbat you can
return for a refund on your next visit.
Altbough much of its low-cost position comes
from baving customers "do it tbemselves," Ikea of-
fers a number of extra services tbat its competitors
do not. In-storc cbild care is one. Extended bours

are anotber. Tbose services are uniquely aligned
with the needs of its customers, wbo are young, not
wealtby, likely to bave cbildren (but no nanny),
and, because tbey work for a living, bave a need
to sbop at odd bours.
The Origins of Strategic Positions
Strategic positions emerge from three distinct
sources, wbicb are not mutually exclusive and
often overlap. First, positioning can be based on
Finding New Positions: The Entrepreneurial Edge
Strategic competition can be thought of as tbe
process of perceiving new positions tbat woo cus-
tomers from established positions or draw new cus-
tomers into the market. For example, superstores of-
fering depth ot' merchandise in a single product
category take market share from broad-line depart-
ment stores offering a more limited selection in many
categories. Mail-order catalogs pick off customers who
crave convenience. In principle, incumbents and en-
trepreneurs face tbe same challenges in finding new
strategic positions. In practice, new entrants often
bave the edge.
Strategic positionings arc often not obvious, and
finding tbem requires creativity and insigbt. New en-
trants often discover unique positions that bave been
available but simply overlooked by established com-
petitors. Ikea, for example, recognized a customer
group that had been ignored or served poorly. Circuit
City Stores' entry into used cars, CarMax, is based on
a new way of performing activities - extensive refur-
bishing ol* cars, product guarantees, no-baggle pricing,

sophisticated use of in-house customer financing -
that has long been open to incumbents.
New entrants can prosper by occupying a position
tbat a competitor once held but has ceded througb
years of imitation and straddling. And entrants com-
ing from other industries can create new positions be-
cause of distinctive activities drawn from their otbci
businesses. CarMax borrows heavily from Circuit
City's expertise in inventory management, credit, and
otber activities in consumer electronics retailing.
Most commonly, however, new positions open up
because of cbange. New customer groups or purchase
occasions arise; new needs emerge as societies evotvc;
new distribution cbannels appear; new technologies
are developed; new machinery or informatiiin systems
become available. When such cbanges happen, new
entrants, unencumbered by a long history in tbe in-
dustry, can often more easily perceive tbe potentialfor
a new way ot" competing. Unlike incumbents, new-
comers can be more flexible because tbey face no
trade-offs witb tbeir existing activities. i
HARVARD BUSINESS REVIEW Nuvcmbcr-Deccmhcr 1996 65
WHAT IS STRATEGY?
producing a subset of an industry's products or ser-
vices. I call this variety-based positioning because
it is based on the choice of product or service vari-
eties rather than customer segments. Variety-based
positioning makes economic sense when a com-

pany can best produce particular products or ser-
vices using distinctive sets of activities.
Jiffy Lube International, for instance, specializes
in automotive lubricants and does not offer other
Strategic positions can be based
on customers' needs, customers'
accessibility, or the variety of a
's products or services.
car repair or maintenance services. Its value chain
produces faster service at a lower cost than broader
line repair shops, a comhination so attractive that
many customers subdivide their purchases, buying
oil changes from the focused competitor. Jiffy Lube,
and going to rivals for other services.
The Vanguard Group, a leader in the mutual fund
industry, is another example of variety-based posi-
tioning. Vanguard provides an array of common
stock, bond, and money market funds that offer pre-
dictable performance and rock-bottom expenses.
Tbe company's investment approach deliberately
sacrifices the possibility of extraordinary perfor-
mance in any one year for good relative perfor-
mance in every year. Vanguard is known, for exam-
ple, for its index funds. It avoids making bets on
interest rates and steers clear of narrow stock
groups. Fund managers keep trading levels low,
which holds expenses down; in addition, the com-
pany discourages customers from rapid buying and
selling because doing so drives up costs and can
force a fund manager to trade in order to deploy new
capital and raise cash for redemptions. Vanguard

also takes a consistent low-cost approach to manag-
ing distribution, customer service, and marketing.
Many investors include one or more Vanguard
funds in their portfolio, while buying aggressively
managed or specialized funds from competitors.
The people who use Vanguard or Jiffy Lube are re-
sponding to a superior value chain for a particular
type of service. A variety-hased positioning can
serve a wide array of customers, but for most it will
meet only a subset of their needs.
A second basis for positioning is that of serving
most or all the needs of a particular group of cus-
tomers. I call this needs-based positioning, which
comes closer to traditional thinking about targeting
a segment of customers. It arises when there are
groups of customers with differing needs, and when
a tailored set of activities can serve those needs
best. Some groups of customers are more price sen-
sitive than otbers, demand different product fea-
tures, and need varying amounts of information,
support, and services. Ikea's customers are a good
example of sucb a group. Ikea seeks
to meet all the home furnishing
needs of its target customers, not
just a subset of them.
A variant of needs-hased position-
ing arises when the same customer
has different needs on different occa-
sions or for different types of transac-
tions. The same person, for example,
may have different needs when trav-

eling on business than wben travel-
ing for pleasure witb tbe family. Buyers of cans -
beverage companies, for example-will likely have
different needs from their primary supplier than
from their secondary source.
It is intuitive for most managers to conceive of
their business in terms of tbe customers' needs
they are meeting. But a critical element of needs-
based positioning is not at all intuitive and is often
overlooked. Differences in needs will not translate
into meaningful positions unless tbe best set of
activities to satisfy them also differs. If that were
not tbe case, every competitor could meet those
same needs, and there would be notbing unique or
valuable about the positioning.
In private banking, for example, Bessemer Trust
Company targets families with a m i n i m u m of
$5 million in investable assets who want capital
preservation combined with wealtb accumulation.
By assigning one sophisticated account officer for
every 14 families, Bessemer has configured its ac-
tivities for personalized service. Meetings, for ex-
ample, are more likely to be beld at a client's ranch
or yacht than in the office. Bessemer offers a wide
array of customized services, including investment
management and estate administration, oversight
of oil and gas investments, and accounting for race-
horses and aircraft. Loans, a staple of most private
banks, are rarely needed by Besscmer's clients and
make up a tiny fraction of its client balances and
income. Despite the most generous compensation
of account officers and the highest personnel cost
as a percentage of operating expenses, Bessemer's

differentiation with its target families produces a
return on equity estimated to be the highest of any
private banking competitor.
Citibank's private bank, on tbe other hand,
serves clients with minimum assets of about
S250,000 wbo, in contrast to Bessemer's clients,
want convenient access to loans-from jumho mort-
gages to deal financing. Citibank's account man-
agers are primarily lenders. When clients need oth-
er services, their account manager refers them to
other Citibank specialists, each of whom handles
prepackaged products. Citibank's system is less
customized than Bessemer's and allows it to have a
lower manager-to-client ratio of 1:125. Biannual of-
fice meetings are offered only for the largest clients.
Both Bessemer and Citibank have tailored their ac-
tivities tu meet the needs of a different group of pri-
vate hanking customers. The same value chain can-
not profitably meet the needs of both groups.
Tbe third basis for positioning is that of seg-
menting customers who are accessible in different
ways. Aitbough their needs are similar to those of
other customers, the hest configuration of activi-
ties to reach them is different. I call this access-
based positioning. Access can be a function of cus-
tomer geography or customer scale-or of anything
that requires a different set of activities to reach
customers in the best way.
Segmenting hy access is less common and less

well understood than the other two hases. Carmike
Cinemas, for example, operates movie theaters ex-
clusively in cities and towns witb populations un-
der 200,000. How dues Carmike make money in
markets that are not only small hut also won't sup-
port big-city ticket prices? It does so through a set
of aetivities that result in a lean eost structure.
Carmike's small-town customers can be served
through standardized, low-cost theater complexes
requiring fewer screens and less sophisticated pro-
jection technology than big-city theaters. The com-
pany's proprietary information system and manage-
ment process elimmate the need for local adminis-
trative staff beyond a single theater manager.
Carmike also reaps advantages from centralized
purchasing, lower rent and payroll costs (because of
its locations), and rock-bottom corporate overhead
of 2% (the industry average is 5%|. Operating in
small communities also allows Carmike to prac-
tice a highly personal form of marketing in which
the theater manager knows patrons and promotes
attendance through personal contacts. By heing the
dominant if not the only theater in its markets-the
main competition is often the high school football
team-Carmike is also able to get its pick of films
and negotiate hetter terms with distributors.
Rural versus urhan-based customers are one ex-
ample of access driving differences in activities.
Serving small rather than large eustomers or dense-
ly rather than sparsely situated customers are other
examples in which the best way to configure mar-
keting, order processing, logistics, and after-sale
service activities to meet the similar needs of dis-
tinct groups will often differ.

Positioning is not only ahout carving out a niche.
A position emerging from any of the sources ean be
hroad or narrow. A focused competitor, such as
Ikea, targets the special needs of a suhset of eus-
tomers and designs its activities accordingly. Fo-
cused competitors thrive on groups of customers
who are overserved (and hence overpriced) hy more
broadly targeted competitors, or underserved (and
hence underpriced). A broadly targeted competitor-
for example, Vanguard or Delta Air Lines - serves
a wide array of customers, performing a set of ac-
tivities designed to meet their common needs. It
The Connection v^ith Generic Strategies
In Competitive Strategy (The Free Press, 1985), I
introduced the concept of generic strategies - cost
leadership, differentiation, and focus - to represent
the alternative strategic positions in an in-
dustry. The generic strategies remain useful
to characterize strategic positions at the sim-
plest and broadest level. Vnnj;uard, for in-
stance, is an example of a cost leadership strat-
egy, whereas Ikea, with its narrow customer
group, is an example of cost-based focus. Neu-
trogena is a focused differentiator. The bases
for positioning - varieties, needs, and access - carry
the understanding of those generic strategies to a
greater level of specificity. Ikea and Southwest are
both cost-based focusers, for example, but Ikea's focus
is based on the needs of a cust(mier group, and
Southwest's is based on offering a particular
service variety.

The generic strategies framework intro-
duced the need to choose in order to avoid be-
cominj^ caught between what I then described
as the inherent contradictions of different
strategies. Trade offs between the activities
of incompatible positions explain those con-
tradictions. Witness Continental Lite, which tried and
failed to compete in two ways at once.
WHAT IS STRATEGY?
ignores or meets only partially the more idiosyn-
cratic needs of particular customer groups.
Whatever the basis - variety, needs, access, or
some combination of the three - positioning re-
quires a tailored set of activities hecause it is al-
ways a function of differences on the supply side;
that is, of differences in activities. However, posi-
tioning is not always a function of differences on
the demand, or customer, side. Variety and access
positionings, in particular, do not rely on any cus-
tomer differences. In practice, however, variety or
aecess differences often aecompany needs differ-
ences. The tastes-that is, the needs-of Carmike's
small-town customers, for instance, run more to-
ward comedies. Westerns, action films, and family
entertainment. Carmike does not run any films
ratedNC-17.

Having defined positioning, we can now hegin to
answer the question, "What is strategy?" Strategy
is the creation of a unique and valuable position, in-
volving a different set of activities. If there were
only one ideal position, there would be no need
for strategy. Companies would face a simple imper-
ative - win the race to discover and preempt it. The
essence of strategic positioning is to choose ac-
tivities that are different from rivals'. If the same
set of activities were hest to produce all varieties,
meet all needs, and access all customers, companies
could easily shift among them and operational ef-
fectiveness would determine performance.
III. A Sustainable Strategic Position Requires Trade-offs
Choosing a unique position, however, is not
enough to guarantee a sustainahle advantage. A
valuahle position will attract imitation hy incum-
bents, who are likely to copy it in one of two ways.
First, a competitor can reposition itself to match
the superior performer. J.C. Penney, for instance,
has been repositioning itself from a Sears clone to a
more upscale, fashion-oriented, soft-goods retailer.
A second and far more common type of imitation is
straddling. The straddler seeks to match the bene-
fits of a successful position while maintaining its
existing position. It grafts new features, services, or
technologies onto the activities it already performs.
For those who argue that competitors can copy
any market position, the airline industry is a per-
fect test case. It would seem that nearly any com-
petitor could imitate any other airline's activities.

Any airline can buy the same planes, lease the
gates, and match the menus and ticketing and hag-
gage handling services offered by other airlines.
Continental Airlines saw how well Southwest
was doing and decided to straddle. While main-
taining its position as a full-service airline. Conti-
nental also set out to match Southwest on a num-
ber of point-to-point routes. The airline dubbed
the new service Continental Lite. It eliminated
meals and first-class service, increased departure
frequency, lowered fares, and shortened turnaround
time at tbe gate. Because Continental remained
a full-service airline on other routes, it continued to
use travel agents and its mixed fleet of planes and
to provide baggage checking and seat assignments.
But a strategic position is not sustainable unless
tbere are trade-offs with other positions. Trade-offs
occur when activities are incompatible. Simply
put, a trade-off means tbat more of one thing neces-
sitates less of anotber. An airline can choose to
serve meals - adding cost and slowing turnaround
time at the gate-or it can choose not to, but it can-
not do both without bearing major inefficiencies.
Trade-offs create the need for choice and protect
against repositioners and straddlers. Consider Neu-
trogena soap. Neutrogena Corporation's variety-
based positioning is built on a "kind to the skin,"
residue-free soap formulated for pH balance. With
a large detail force calling on dermatologists, Neu-
trogena's marketing strategy looks more like a drug
company's than a soap maker's. It advertises in
medical journals, sends direct mail to doctors, at-

tends medical conferences, and performs research
at its own Skincare Institute. To reinforce its posi-
tioning, Neutrogena originally focused its distribu-
tion on drugstores and avoided price promotions.
Neutrogena uses a slow, more expensive manufac-
turing process to mold its fragile soap.
In choosing this position, Neutrogena said no to
the deodorants and skin softeners that many cus-
tomers desire in their soap. It gave up the large-
volume potential of selling tbrough supermarkets
and using price promotions. It sacrificed manufac-
turing efficiencies to achieve the soap's desired at-
tributes. In its original positioning, Neutrogena
made a whole raft of trade-offs like those, trade-offs
that protected the company from imitators.
Trade-offs arise for three reasons. The first is in-
consistencies in image or reputation. A company
known for delivering one kind of value may lack
credibility and confuse customers-or even under-
68 HARVARD BUSINESS REVIEW Novembet-December 1996
mine its reputation - if it delivers another kind of
value or attempts to deliver two inconsistent
things at the same time. For example. Ivory soap,
with its position as a basic, inexpensive everyday
soap would have a hard time reshaping its image to
match Neutrogena's premium "medical" reputa-
tion. Efforts to create a new image typically cost
tens or even hundreds of millions of dollars in a
major industry-a powerful barrier to imitation.

Second, and more important, trade-offs arise
from activities themselves. Different positions
(with their tailored activities) require different
product configurations, different equipment, differ-
ent employee behavior, different skills, and dif-
ferent management systems. Many trade-offs re-
flect inflexibilities in macbinery, people, or systems.
The more Ikea bas configured its activities to
lower costs by having its customers do their own
assemhly and delivery, the less ahle it is to satisfy
customers who require higher levels of service.
However, trade-offs can be even more basic. In
general, value is destroyed if an activity is overde-
signed or underdesigned for its use. For example,
even if a given salesperson were capable of provid-
ing a high level of assistance to one customer and
none to another, the salesperson's talent (and some
of his or her cost) would he wasted on the second
customer. Moreover, productivity can improve
when variation of an activity is limited. By provid-
ing a high level of assistance all tbe time, the sales-
person and the entire sales activity can often
achieve efficiencies of learning and scale.
Finally, trade-offs arise from limits on internal
coordination and control. By clearly choosing to
ct)mpete in one way and not another,
senior management makes organiza-
tional priorities clear. Companies
that try to be all things to all cus-
tomers, in contrast, risk confusion in
tbe trenches as employees attempt
to make day-to-day operating deci-
sions without a clear framework.

Positioning trade-offs are perva-
sive in competition and essential to
strategy. They create the need for
choice and purposefully limit what a company of-
fers. They deter straddling or repositioning, because
competitors that engage in those approaches under-
mine their strategies and degrade the value of tbeir
existing activities.
Trade-offs ultimately grounded Continental Lite.
The airline lost hundreds of millions of dollars, and
the CEO lost his job. Its planes were delayed leav-
ing congested hub cities or slowed at the gate by
haggage transfers. Late flights and cancellations
generated a thousand complaints a day. Continen-
tal Lite could not afford to compete on price and
still pay standard travel-agent eommissions, hut
neither could it do without agents for its full-
service business. The airline compromised by cut-
ting commissions for all Continental flights across
the board. Similarly, it could not afford to offer the
same frequent-flier benefits to travelers paying the
much lower ticket prices for Lite service. It com-
promised again hy lowering tbe rewards of Conti-
nental's entire frequent-flier program. Tbe results:
angry travel agents and full-service customers.
Continental tried to compete in two ways at
once. In trying to be low cost on some routes and
full service on others. Continental paid an enor-
mous straddling penalty. If there were no trade-offs
between the two positions. Continental could have
succeeded. But the absence of trade-offs is a danger-
ous half-truth that managers must unlearn. Quality
is not always free. Southwest's convenience, one

kind of high quality, happens to be consistent with
low costs because its frequent departures are facili-
tated by a number of low-cost practices-fast gate
turnarounds and automated ticketing, for example.
However, other dimensions of airline quality - an
assigned seat, a meal, or baggage transfer - require
costs to provide.
In general, false trade-offs hetween cost and qual-
ity occur primarily wben there is redundant or
wasted effort, poor control or accuracy, or weak co-
ordination. Simultaneous improvement of cost and
differentiation is possible only when a company be-
gins far bebind the productivity frontier or when
the frontier shifts outward. At the frontier, where
Trade-offs are essential to
strategy. They create the need
for choice and purposefully
limit what a company offers.
companies have achieved current best practice, the
trade-off between cost and differentiation is very
real indeed.
After a decade of enjoying productivity advan-
tages, Honda Motor Company and Toyota Motor
Corporation recently bumped up against tbe fron-
tier. In 1995, faced with increasing customer resis-
tance to higher automobile prices, Honda found
that the only way to produce a less-expensive car
was to skimp on features. In the United States,

WHAT IS STRATEGY?
it replaced the rear disk brakes on the Civic with
lower-cost drum brakes and used cheaper fabric for
the back seat, hoping customers would not notice.
Toyota tried to sell a version of its best-selling Co-
rolla in Japan with unpainted bumpers and cheaper
seats. In Toyota's case, customers rebelled, and the
company quickly dropped the now model.
For the past decade, as managers have improved
operational effectiveness greatly, they have inter-
nalized the idea that eliminating trade-offs is a good
thing. But if there are no trade-offs companies will
never achieve a sustainable advantage. They will
have to run faster and faster just to stay in place.
As we return to the question, What is strategy?
we see that trade-offs add a new dimension to the
answer. Strategy is making trade-offs in competing.
The essence of strategy is choosing what not to do.
Without trade-offs, there would be no need for
choice and thus no need for strategy. Any good idea
could and would he quickly imitated. Again, perfor-
mance would once again depend wholly on opera-
tional effectiveness.
IV. Fit Drives Both Competitive Advantage and Sustainability
Positioning choices determine not only which
activities a company will perform and how it
will configure individual activities but also how
activities relate to one another. While operational

effectiveness is ahout achieving excellence in indi-
vidual activities, or functions, strategy is about
combining activities.
Southwest's rapid gate turnaround, which allows
frequent departures and greater use of aircraft, is
essential to its high-convenience, low-cost posi-
tioning. But how does Southwest achieve it? Part
of the answer lies in the company's well-paid gate
and ground crews, whose productivity in turn-
arounds is enhanced by flexible union rules. But
the bigger part of the answer lies in how South-
west performs other activities. With no meals, no
seat assignment, and no interline baggage trans-
fers. Southwest avoids having to perform activities
that slow down other airlines. It selects airports
and routes to avoid congestion that introduces
delays. Southwest's strict hmits on the type and
length of routes make standardized aircraft possi-
ble; every aircraft Southwest turns is a Boeing 737.
Fit locks out imitators by
creating a chain that is as
strong as its strongiest link,
What is Southwest's core competence? Its key
success factors? The correct answer is that every-
thing matters. Southwest's strategy involves a
whole system of activities, not a collection of parts.
Its competitive advantage comes from the way its
activities fit and reinforce one another.
Fit locks out imitators by creating a chain that is
as strong as its strongest link. As in most compa-
nies with good strategies, Southwest's activities
complement one another in ways that create real

economic value. One activity's cost, for example, is
lowered because of the way other activities are per-
formed. Similarly, one activity's value to customers
can be enhanced by a company's other activities.
Tbat is the way strategic fit creates competitive
advantage and superior profitability.
Types of Fit
The importance of fit among functional policies
is one of the oldest ideas in strategy. Gradually,
however, it has been supplanted on the manage-
ment agenda. Rather than seeing the company as
a whole, managers have turned to "core" compe-
tencies, "critical" resources, and "key" success fac-
tors. In fact, fit is a far more central component of
competitive advantage than most realize.
Fit is important because discrete activities often
affect one another. A sophisticated sales force, for
example, confers a greater advan-
tage when the company's product
embodies premium technology and
its marketing approach emphasizes
customer assistance and support.
A production line with high levels
of model variety is more valuahle
when comhined with an inventory
and order processing system that
minimizes the need for stocking finished goods,
a sales process equipped to explain and encour-
age customization, and an advertising theme that
stresses the henefits of product variations that
meet a customer's special needs. Such complemen-

tarities are pervasive in strategy. Although some
fit among activities is generic and applies to many
companies, the most valuable fit is strategy-spe-
cific because it enhances a position's uniqueness
and amplifies trade-offs/
There are three types of fit, although they are not
mutually exclusive. First-order fit is simple consis-
tency between each activity (function) and the
overall strategy. Vanguard, for example, aligns all
activities with its low-cost strategy. It minimizes
portfolio turnover and does not need highly com-
pensated money managers. The company distrib-
utes its funds directly, avoiding commissions to
brokers. It also limits advertising, relying instead
on public relations and word-of-mouth recommen-
dations. Vanguard ties its employees' bonuses to
cost savings.
Consistency ensures that the competitive advan-
tages of activities cimiulate and do not erode or can-
cel tbemselves out. It makes the strategy easier to
communicate to customers, employees, and share-
holders, and improves implementation through
single-mindcdness in the corporation.
Second-order fit occurs when activities are re-
inforcing. Neutrogena, for example, markets to
upscale hotels eager to offer their guests a soap rec-
ommended by dermatologists. Hotels grant Neu-
trogena the privilege of using its customary packag-

ing while requiring other soaps to feature the
hotel's name. Once guests have tried Neutrogena in
a luxury hotel, they are more likely to purchase it at
the drugstore or ask their doctor about it. Thus
Neutrogena's medical and hotel marketing activi-
ties reinforce one another, lowering total market-
ing costs.
In another example, Bic Corporation sells a nar-
row line of standard, low-priced pens to virtually
all major eustomer markets (retail, commereial,
promotional, and giveaway) through virtually all
available channels. As with any variety-based posi-
tioning serving a broad group of customers, Bic
emphasizes a common need (low price for an ac-
ceptable pen) and uses marketing approaches with
a broad reach (a large sales force and heavy televi-
sion advertising). Bic gains the benefits of consis-
Mapping Activity Systems
Acfivity-system maps, such as tbis one for Ikea, show how a
company's strategic position is contained in a set of tailored
adivities designed to deliver it. In companies with a clear
Explanatory -
catalogues,
informative
displays and
labels
Ease oF
transport a n d j
assembly '

"Knock-down"
kit packaging
Self-assembly
by customers
Wide variety
with ease of
manufacturing
strategic position, a number of higher-order strategic themes (in
dark purple) can be identified and implemented through
clusters of tightly linked activities (in light purple).
More
impulse
buying
Suburban
locations
with ample
parking
Increased
likelihood of
future
purchase
In-house
design focused
on cost of
manufacturing

Low
manufacturing
cast
Most
items in
inventory
Year-round
stocking
100%
sourcing from
iong term
suppliers
Vanguard's Activity System
Activity-system maps can be useful tor examining and
strengthening strategic fit. A set of basic questions should
guide the process. First, is each activity consistent with the
overall positioning - the varieties produced, the needs served,
and the type of customers accessed? Ask those responsible for
each activity lo identify how other octivities within the
company
improve or detract from their performance. Second, are there
ways to strengthen how activities and groups of activities
reinforce one another? Finally, could changes in one activity

eliminate the need to perform others?
Wary of
small growth
jnds
A brood array
of mutuol funds
excluding some
fund categories
Employee
bonuses
tied to
cost savings
Very low
expenses
passed on to
client
No
broker-dealer
relationships
Limited
international
funds due to
volatility and.
high costs
Useot

redemption
fees fo
discourage
trading
In-house
management
for standard
funds
Efficient investment
management approach
offering good, consistent
performance ^ '
Very low rate
of trading
Na marketing
changes
Strict cost
control
No
commissions
to brokers or
distributors
Direct
distribution

Long-term
investment
encouraged
No first<lass
travel for
executives
Only three
retail
locations
Limited
advertising
budget
Straightforward
client communication
and educotion
Emphasis
an bonds
and equity
index funds
Shareholder
education
cautioning
about risk
On-line

information
access
Reliance
on word
of mouth
Vanguard
actively
spread
philosophy
its
tency across nearly all activities, including product
design that emphasizes ease of manufacturing,
plants configured for low cost, aggressive purchas-
ing to minimize material costs, and in-house parts
production whenever the economics dictate.
Yet Bic goes heyond simple consistency hecause
its activities are reinforcing. For example, the com-
pany uses point-of-sale displays and frequent pack-
The competitive value of
individual activities cannot be
separated from the whole. ; ;
aging changes to stimulate impulse huying. To han-
dle point-of-sale tasks, a company needs a large
sales force. Bic's is the largest in its industry, and
it handles point-of-sale activities hetter than its ri-
vals do. Moreover, the comhination of point-of-sale

activity, heavy television advertising, and packag-
ing changes yields far more impulse huying than
any activity in isolation could.
Third-order fit goes heyond activity reinforce-
ment to what I call optimization of effort. The Gap,
a retailer of casual clothes, considers product avail-
ahility in its stores a critical clement of its strategy.
The Gap could keep products either hy holding
store inventory or by restocking
from warehouses. The Gap has opti-
' mized its effort across these activi-
ties hy restocking its selection of ha-
sic clothing almost daily out of three
warehouses, therehy minimizing the
I need to carry large in-store invento-
.. I ries. The emphasis is on restocking
hecause the Gap's merchandising
strategy sticks to hasic items in relatively few col-
ors. While comparahle retailers achieve turns of
three to four times per year, the Gap turns its inven-
tory seven and a half times per year. Rapid restock-
ing, moreover, reduces the cost of implementing
WHAT IS STRATEGY?
the Gap's short model cycle, which is six to eight
weeks long.'

Coordination and information exchange across
activities to eliminate redundancy and ininimize
wasted ctfort are the most hasic types of effort opti-
mization. But there are higher levels as well. Prod-
uct design choices, for example, can eliminate the
need for after-sale service or make it possible for
customers to perform service activities them-
selves. Similarly, coordination with suppliers or
distribution channels can eliminate the need for
some in-house activities, such as end-user training.
In all three types of fit, the whole matters more
than any individual part. Competitive advantage
grows out of the entire system of activities. The fit
among activities substantially reduces cost or in-
creases differentiation. Beyond that, the competi-
tive value of individual activities-or the associated
skills, competencies, or resources - cannot be de-
coupled from the system or the strategy. Thus in
competitive companies it can be misleading to ex-
plain success by specifying individual strengths,
core competeneies, or critical resources. The list of
strengths cuts across many functions, and one
strength blends into others. It is more useful to
think in terms of themes that pervade many activi-
ties, such as low cost, a particular notion of cus-
tomer service, or a particular conception of the
value delivered. These themes are embodied in
nests of tightly linked activities.
Fit and Sustalnability
Strategic fit among many activities is fundamen-
tal not only to competitive advantage but also to

the sustainability of that advantage. It is harder for
a rival to match an array of interlocked activities
than it is merely to imitate a particular sales-foree
approach, match a process technology, or replicate
a set of product features. Positions built on systems
of aetivities are far more sustainable than those
built on individual aetivities.
Consider this simple exercise. The probahility
that competitors can match any activity is often
Southwest Airlines' Activity System
No baggage I
transfers I
• • M ^
No seat
assignments
No
connections
wilh other
airlines
Limited use
of travel
agents Standard izGci
fleet of 737
aircraft
gate
turnarounds

Automatic
ticketing
machinesHigh
Compensation
of employees
"Southwest,
the low-fare
airline"
High level
of employee
stock
union
contracts
HARVARD BUSINESS REVIEW Nnvi^mbcr-December 73
WHAT IS STRATEGY7
less than one. The probabilities then quickly com-
pound to make matching the entire system highly
unlikely (.9x.9= .81; .9x.9x.9x.9= .66, and so on).
Existing companies that try to reposition or strad-
dle will he forced to reconfigure many activities.
Strategic positions should have
a horizon of a decade or more,
not of a single planning cycle.

And even new entrants, though they do not con-
front the trade-offs facing estahlished rivals, still
face formidahle harriers to imitation.
The more a company's positioning rests on activ-
ity systems with second- and third-order fit, the
more sustainahle its advantage will he. Such sys-
tems, hy their very nature, are usually difficult to
untangle from outside the company and therefore
hard to imitate. And even if rivals can identify the
relevant interconnections, they will have difficulty
replicating them. Achieving fit is difficult hecause
it requires the integration of decisions and actions
across many independent suhunits.
A competitor seeking to match an activity sys-
tem gains little by imitating only some activities
and not matching the whole. Performance does not
improve; it can decline. Recall Continental Lite's
disastrous attempt to imitate Southwest.
Finally, fit among a company's activities creates
pressures and incentives to improve operational
effectiveness, which makes imitation even harder.
Fit means that poor performance in one activity
will degrade the performance in others, so that
weaknesses are exposed and more prone to get at-
tention. Conversely, improvements in one activity
will pay dividends in others. Companies with
strong fit among their activities are rarely inviting
targets. Their superiority in strategy and in execu-
tion only compounds their advantages and raises
the hurdle for imitators.
When activities complement one

another, rivals will get httle henefit
from imitation unless they success-
fully match the whole system. Such
situations tend to promote winner-
take-all competition. The company
that huilds the hest activity system-
Toys R Us, for instance-wins, while
rivals with similar strategies-Child World and Li-
onel Leisure-fall behind. Thus finding a new stra-
tegic position is often preferable to heing the second
or third imitator of an occupied position.
The most viahle positions are those whose ac-
tivity systems are incompatihle because of trade-
offs. Strategic positioning sets the trade-off rules
that define how individual activities will he con-
figured and integrated. Seeing strategy in terms of
activity systems only makes it clearer why organi-
zational structure, systems, and processes need to
he strategy-specific. Tailoring organization to strat-
egy, in turn, makes complementarities more achiev-
able and contributes to sustainahility.
One implication is that strategic positions
should have a horizon of a decade or more, not of a
single planning cycle. Continuity fosters improve-
ments in individual activities and the fit across ac-
tivities, allowing an organization to huild unique
capabilities and skills tailored to its strategy. Conti-
nuity also reinforces a company's identity.
Conversely, frequent shifts in positioning are
costly. Not only must a company reconfigure indi-
vidual activities, hut it must aiso realign entire sys-

Alternative Vievŝ s of Strategy
The Implicit Strategy Model of the Past Decade
_ One ideal competitive position in the industry
- Benchmarking of all activities and achieving best
practice
Aggressive outsourcing and partnering to gain
efficiencies
Advantages rest on a few key success factors,
critical resources, core competencies
. Flexibility and rapid responses to all competitive
and market changes
Sustainable Competitive Advantage
I Unique competitive position tor the company
J Activities tailored to strategy
J Clear trade-offs and choices vis-^-vis competitor!
I Competitive advantage arises from fit across
activities
Sustainability conies from tbe activity system,
not tbe parts
' Operational effectiveness a given
tcms. Some activities may never catch up to the
vacillating strategy. The inevitable result of fre-

quent shifts in strategy, or of failure to choose a dis-
tinct position in the first place, is "me-too" or
hedged activity configurations, inconsistencies
across functions, and organizational dissonance.
What is strategy- We can now complete the an-
swer to this question. Strategy is creating fit among
a company's activities. The success of a strategy
depends on doing many things well-not just a few-
and integrating among them. If there is no fit
among activities, there is no distinctive strategy
and little sustainahility. Management reverts to the
simpler task of overseeing independent functions,
and operational effectiveness determines an organi-
zation's relative performance.
V. Rediscovering Strategy
The Failure to Choose
why do so many companies fail to have a strat-
egy? Why do managers avoid making strategic
choices? Or, having made them in the past, why do
managers so often let strategies decay and blur?
Commonly, the threats to strategy are seen to
emanate from outside a company because of
changes in technology or the behavior of competi-
tors. Although external changes can he the proh-
lem, the greater threat to strategy often comes from
within. A sound strategy is undermined hy a mis-
guided view of competition, by organizational fail-
ures, and, especially, by the desire to grow.
Managers have become confused about the ne-
cessity of making choices. When many companies

operate far from the productivity frontier, trade-offs
appear unnecessary. It can seem that a well-run
company should he able to beat its ineffective rivals
on all dimensions simultaneously. Taught hy popu-
lar management thinkers that they do not have to
make trade-offs, managers have acquired a macho
sense that to do so is a sign of weakness.
Unnerved by forecasts of hypercompetition,
managers increase its likelihood by imitating
everything about their competitors. Exhorted to
think in terms of revolution, managers chase every
new tecbnology for its own sake.
The pursuit of operational effectiveness is seduc-
tive hecause it is concrete and actionahle. Over the
past decade, managers have been under increasing
pressure to deliver tangible, measurable perfor-
mance improvements. Programs in operational ef-
fectiveness produce reassuring progress, although
superior profitability may remain elusive. Business
publications and consultants flood the market with
information about what other companies are doing,
reinforcing the best-praetice mentality. Caught up
in the race for operational effectiveness, many
managers simply do not understand the need to
h;ive a strategy.
Companies avoid or hlur strategic choices for
other reasons as well. Conventional wisdom within
an industry is often strong, homogenizing competi-
tion. Some managers mistake "customer focus" to
mean they must serve all customer needs or re-
spond to every request from distribution channels.
Others cite the desire to preserve flexihility.

Organizational realities also work against strate-
gy. Trade-offs are frightening, and making no choice
is sometimes preferred to risking blame for a bad
choice. Companies imitate one another in a type
of herd hehavior, each assuming rivals know some-
thing they do not. Newly empowered employees,
who are urged to seek every possihle source of im-
provement, often lack a vision of the whole and
the perspective to recognize trade-offs. The faiiure
to choose sometimes eomes down to the reluctance
to disappoint valued managers or employees.
The Growth Trap
Among all other influences, the desire to grow
has perhaps the most perverse effeet on strategy.
Trade-offs and limits appear to constrain growth.
Serving one group of customers and excluding oth-
ers, for instance, places a real or imagined limit on
revenue growth. Broadly targeted strategies empha-
sizing low price result in lost sales with customers
sensitive to features or service. Differentiators lose
sales to price-sensitive customers.
Managers are constantly tempted to take incre-
mental steps that surpass those limits but blur a
company's strategic position. Eventually, pressures
to grow or apparent saturation of the target market
lead managers to broaden the position hy extending
product lines, adding new features, imitating com-
petitors' popular services, matching processes, and
even making acquisitions. For years, Maytag Cor-
poration's success was based on its focus on reli-
able, durable washers and dryers, later extended to
include dishwashers. However, conventional wis-

Reconnecting v^ith Strategy
Most companies owe their initial success to a
unique strategic position involving clear trade-offs.
Activities once were aligned with that position. The
passage of time and the pressures of growth, however,
led to compromises that were, at first, almost imper-
c e p t i b l e . Through a succession of i n c r e m e n t a l
changes that eaeh seemed sensible at the time, many
established companies have compromised their way
to homogeneity with their rivals.
The issue here is not with the companies whose his-
torical position is no longer viable; their challenge is
to start over, just as a new entrant would. At issue is a
far more common phenomenon: the established com-
pany achieving medioere returns and lacking a clear
strategy. Through incremental additions of product
varieties, incremental efforts to serve new customer
groups, and emulation of rivals' activities, the existing
company loses its clear competitive position. Typical-
ly, the company has matched many of its competitors'
offerings and practices and attempts to sell to most
customer groups.
A number of approaches can help a company recon-
nect with strategy. The first is a eareful look at what it
already does. Within most well-established compa-
nies is a core of uniqueness. It is identified by answer-
ing questions sueh as the following:
D Which of our product or service varieties are the
most distinctive ?

n Which of our product or service varieties are the
most profitable?
D Which of our customers are the most satisfied?
n which eustomers, ehannels, or purchase occasions
are the most profitable?
n Which ot the activities in our value chain are the
most different and effective?
Around this eore of uniqueness are encrustations
added incrementally over time. Like barnacles, they
must be removed to reveal the underlying strategic po-
sitioning. A small percentage of varieties or customers
may well account for most of a company's sales and es-
pecially its profits. The challenge, then, is to refocus
on the unique core and realign the company's activi-
ties with it. Customers and product varieties at the
periphery can be sold or allowed through inattention
or price increases to fade away.
A company's history can also be instructive. What
was the vision of the founder? What were the products
and customers that made the company? Looking back-
ward, one ean reexaminc the original strategy to .see if
it is still valid. Can the historical positioning be im-
plemented in a modern way, one consistent with to-
day's technologies and practices? This sort of thinking
may lead to a commitment to renew the strategy and
may chaiienge the organization to recover its distinc-
tiveness. Such a challenge can be galvanizing and can
instill the confidence to make the needed trade-offs.
dom emerging within the industry supported the
notion of selling a full line of products. Concerned
with slow industry growth and competition from
broad-line appliance makers, Maytag was pressured

by dealers and encouraged by customers to extend
its line. Maytag expanded into refrigerators and
cooking products under the Maytag brand and ac-
quired other brands - Jenn-Air, Hardwick Stove,
Hoover, Admiral, and Magic Chef - with disparate
positions. Maytag has grown substantially from
$684 million in 1985 to a peak of $3.4 billion in
1994, but return on sales has declined from 8% to
12% in the 1970s and 1980s to an average of less
tban 1% between 1989 and 1995. Cost cutting will
improve this performance, but laundry and dish-
washer products still anchor Maytag's profitability.
Neutrogena may bave fallen into the same trap.
In the early 1990s, its U.S. distribution broadened
to include mass merchandisers such as Wal-Mart
Stores. Under the Neutrogena name, tbe company
expanded into a wide variety of products - eye-
makeup remover and shampoo, for example - in ]
which it was not unique and which diluted its im-
age, and it began turning to price promotions.
Compromises and inconsistencies in tbe pursuit
of growtb will erode tbe competitive advantage a
company had with its original varieties or target
customers. Attempts to compete in several ways at
once create confusion and undermine organization-
al motivation and focus. Profits fall, but more rev-
enue is seen as the answer. Managers are unable to
make choices, so tbe company embarks on a new
round of broadening and compromises. Often, ri-
vals continue to matcb each otber until desperation
breaks tbe cycle, resulting in a merger or downsiz-
ing to the original positioning.

Profitable Growth
Many companies, after a decade of restructuring
and cost-cutting, are turning tbeir attention to
growth. Too often, efforts to grow blur uniqueness.
WHAT IS STRATEGY?
create compromises, reduce fit, and ultimately un-
dermine competitive advantage. In tact, the growth
imperative is hazardous to strategy.
What approaches to growth preserve and rein-
force strategy? Broadly, the prescription is to con-
centrate on deepening a strategic position rather
than hroadening and compromising it. One ap-
proach is to look for extensions of the strategy that
leverage the existing activity system hy offering
features or services that rivals would find impossi-
ble or costly to match on a stand-alone basis. In oth-
er words, managers can ask themselves which ac-
tivities, features, or forms of competition are
feasihlc or less costly to them because of comple-
mentary activities that their company performs.
Deepening a position involves making the com-
pany's activities more distinctive, strengthening
fit, and communicating the strategy hetter to those
customers who should value it. But many compa-
nies suecumh to the temptation to chase "easy"
growth hy adding hot features, products, or services
without screening them or adapting them to their

strategy. Or they target new customers or markets
in which the company has little special to offer. A
company can often grow faster-and far more prof-
itahly - hy hetter penetrating needs and varieties
where it is distinctive than by slugging it out in po-
tentially higher growth arenas in whieh the com-
pany lacks uniqueness. Carmike, now the largest
theater chain in the United States, owes its rapid
growth to its disciplined concentration on small
markets. The company quickly sells any hig-city
theaters that come to it as part of an acquisition.
Globalization often allows growth that is consis-
tent with strategy, opening up larger markets for a
focused strategy. Unlike broadening domestically.
At general management's core is
strategy: defining a company's
position, making trade-offs, and
forging fit among activities.
expanding globally is likely to leverage and rein-
force a company's unique position and identity.
Companies seeking growth through hroadening
within their industry can best contain the risks to
strategy by creating stand-alone units, each with its
own hrand name and tailored activities. Maytag has
clearly struggled with this issue. On the one hand,
it has organized its premium and value hrands into
separate units witb different strategic positions.
On the otber, it has created an umbrella appliance
company for all its brands to gain critical mass.
With shared design, manufacturing, distrihution,
and customer service, it will he hard to avoid ho-

mogenization. If a given husiness unit attempts to
compete with different positions for different prod-
ucts or customers, avoiding compromise is nearly
impossible.
The Role of Leadership
The challenge of developing or reestablishing a
clear strategy is often primarily an organizational
one and depends on leadership. With so many
forces at work against making choices and trade-
offs in organizations, a clear intellectual framework
to guide strategy is a necessary counterweight.
Moreover, strong leaders willing to make choices
are essential.
In many companies, leadership has degenerated
into orchestrating operational improvements and
making deals. But the leader's role is hroader and far
more important. Ceneral management is more
than the stewardship of individual functions. Its
core is strategy: defining and communicating the
company's unique position, making trade-offs, and
forging fit among activities. The leader must pro-
vide the discipline to decide which i n d u s t r y
changes and customer needs the company will re-
spond to, while avoiding organizationai distrac-
tions and maintaining the company's distinctive-
ness. Managers at lower levels lack the perspective
and the confidence to maintain a strategy. There
will he constant pressures to compromise, relax
trade-offs, and emulate rivals. One of the leader's
jobs is to teach others in the organi-
zation ahout strategy-and to say no.

Strategy renders choices ahout
w h a t n o t to do as i m p o r t a n t as
choices about what to do. Indeed,
setting limits is another function of
leadership. Deciding which target
group of customers, varieties, and
needs the company should serve is
fundamental to developing a strat-
egy. But so is deciding not to serve
other customers or needs and not to offer certain
features or services. Thus strategy requires con-
stant discipline and clear communication. Indeed,
one of the most important functions of an explicit,
communicated strategy is to guide employees in
making choices that arise because of trade-offs
in their individual activities and in day-to-day
decisions.
HARVARD BUSINESS REVIEW November-December 1996
Emerging Industries and Technologies
Developing a strategy in a newly emerging industry
or in a business undergoing revolutionary technologi-
cal changes is a daunting proposition. In such cases,
managers face a high level of uncertainty ahout the
needs of customers, the products and services that
will prove to he the most desired, and the hest configu-
ration of activities and technologies to deliver them.
Because of all this uncertainty, imitation and hedging
are rampant: unable to risk being wrong or left hehind,
companies match all features, offer all new services,
and explore all technologies.

During such periods in an industry's development,
its hasic productivity frontier is being established or
reestablished. Explosive growth can make such times
profitable for many companies, but profits will he
temporary hecause imitation and strategic conver-
gence will ultimately destroy industry profitability.
The companies that are enduringly successful will be
those that begin as early as possible to define and em-
body in tbeir activities a unique competitive position.
A period of imitation may be inevitable in emerging
industries, but that period reflects the level of uncer-
tainty rather than a desired state of affairs.
In high-tech industries, this imitation phase often
continues much longer than it should. Enraptured by
tecbnological change itself, companies pack more fea-
tures - most of which are never used - into their prod-
ucts while slashing prices across the board. Rarely are
trade-offs even considered. The drive for growth to sat-
isfy market pressures leads companies into every
product area. Although a few companies with funda-
mental advantages prosper, the majority are doomed
to a rat race no one can win.
Ironically, the popular business press, focused on
hot, emerging industries, is prone to presentmg these
special cases as proof that we have entered a new era of
competition in which none of the old rules are valid.
In fact, tbe opposite is true.
Improving operational effectiveness is a neces-
sary part of management, but it is not strategy. In
confusing the two, managers have unintentionally
backed into a way of thinking about competition

that is driving many industries toward competitive
convergence, which is in no one's best interest and
is not inevitable.
Managers must clearly distinguish operational
effectiveness from strategy. Both are essential, but
the two agendas are different.
The operational agenda involves continual im-
provement everywhere there are no trade-offs. Fail-
ure to do this creates vulnerability even for compa-
nies with a good strategy. The operational agenda
is the proper place for constant change, flexihility,
and relentless efforts to achieve hest practice. In
contrast, the strategic agenda is the right place for
defining a unique position, making clear trade-offs,
and tightening fit. It involves the continual search
for ways to reinforce and extend the company's po-
sition. The strategic agenda demands discipline
and continuity; its enemies are distraction and
compromise.
Strategic continuity does not imply a static view
of competition. A company must continually im-
prove its operational effectiveness and actively
try to shift the productivity frontier,- at the same
time, there needs to be ongoing effort to extend
its uniqueness while strengthening the fit among
its activities. Strategic continuity, in fact, should
make an organization's continual improvement
more effective.
A company may have to change its strategy if
there are major structural changes in its industry.
In fact, new strategic positions often arise hecause

of industry changes, and new entrants unencum-
bered by history often can exploit them more easily.
However, a company's choice of a new position
must be driven hy the ability to find new trade-offs
and leverage a new system of complementary activ-
ities into a sustainable advantage.
1.1 first described the concept of activities and its use in
understanding
competitive advantage in Competitive Advanlaae |New York:
The Free
Press, 19S5|. The ideas iti this article build on and extend that
thinking.
2. Paul Milgrom and [ohn Roberts bave hegiin to explore the
economics of
systems of compkmfntary functions, activities, and functions.
Their fo-
cus is on tbe emergence of "modern manufacturing" as a new set
of com-
plementary activities, on the tendency of companies to react to
external
changes with coherent hundles of internal responses, and on the
need for
central cuordination-a strategy-to align functional managers. In
the Ut-
ter case, they model wbat has long been a bedrock principle of
strategy.
See Paul Milgrom and lohn Roberts, "Tbe Economics nf Modern
Manu-
facturing: Technology, Strategy, and Organization," Amencan
Economic
ReWewS0(1990|: 511-528; Paul Milgrom, Ymgyi Qian, and
iohn Roberts,
"Complemt-ntarities, Momentum, and Evolution of Modern
Manufactur-

ing," AnieriCii/J ftouomic Review 81 (1991184-88; and Paul
Milgrom and
Iohn Roberts, "Complementarities and Fit: Strategy, Structure,
and Orga-
nizational C^hanges in Manufacturing," fournal of Accounting
and Eco-
nomics, vol. 19 |Marcb-May 1995): 179-208.
3. Material on retail strategies is drawn in part from |an Rivkin,
"The Rise
of Retail Category Killers," unpublisbed working paper, January
1995.
Nicolaj Siggelkow prepared the case study on the Gap.
Reprint 96608 To order reprints, see tbe last page of this issue.
78 HARVARD BUSINESS REVIEW Novemher-Deeember ! 996
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© 2008 Palgrave Macmillan 1741-2439 Vol. 15, 3, 169–190
Database Marketing & Customer Strategy Management 169
www.palgrave-journals.com/dbm
Aihie Osarenkhoe
Department of Business
Studies,
University of G ä vle,
G ä vle SE-801 76, Sweden
Tel: + 46 2664 8500;
Fax: + 46 2664 8589;
e-mail: [email protected]
INTRODUCTION
The last decade has seen the emergence of
customer relationship management (CRM)
as a technique to underpin organisational
performance improvement in improving
customer retention, customer satisfaction
and customer value. 1 Evidence suggests,
however, that many CRM initiatives fail. 2,3

What characterises the culture
of a market-oriented organisation
applying a customer-intimacy
philosophy?
Received (in revised form): 1st August, 2008
Aihie Osarenkhoe
earned his PhD in Business Administration at Stockholm
University, Sweden. He is a member of the Editorial Advisory
Board of
the Business Process Management Journal . His research
interests include strategic marketing issues such as
implementation of
customer relationship management and interplay between
information technology and marketing paradigms. He has
published
articles in, among others, the International Journal of Strategic
Management , the Business Process Management Journal , the
International Journal of Technology Marketing and the Asian
Journal of Information Technology . Apart from offering
courses such
as Customer Relationship Management, Brand Management,
International Business Strategy and Marketing Theories, the
author is
the head of the MBA programme in Marketing Management at
the University of G ä vle in Sweden.
Keywords market orientation , customer-intimacy
business philosophy , resource-based
view , organisational learning , organisational culture ,
knowledge-era organisation
Abstract What characterises the culture of a market-oriented
fi rm applying customer-
intimacy philosophy? To answer this question, a conceptual
framework, drawing on the

resource-based perspective and organisational learning is
offered as a descriptive and
analytical device, rather than as a prescriptive model to
highlight the implementation
elements of customer-intimacy philosophy. A qualitative
research strategy was followed
and the in-depth case study approach adopted drew on multiple
sources including focus
group discussion and face-to-face interviews. Findings include:
the outcome of the fi rm ’ s
strategy is attributed to socially complex phenomena such as the
prevailing culture in the
organization in creating value for the customers and fi rms; the
fi rm ’ s commitment to
continuous improvement and the behaviour of people in the
organisation toward their
customers and each other are vital sources for fi rms to attain
sustainable competitive
advantage. The paper concludes that moving from sales to a
customer-intimacy
philosophy requires an appreciation of the current and changing
needs of customers
that continuously fi ne-tune the strategy ’ s compatibility with
corresponding values in the
fi rm ’ s business culture, and maintain an informed workforce
that is aligned with the
philosophy. Implications are that in a complete customer-
intimacy philosophy, all
business processes and all individuals are focused on
identifying and meeting the
needs of customer.
Journal of Database Marketing & Customer Strategy
Management (2008) 15, 169 – 190.
doi: 10.1057/dbm.2008.14 ; published online 8 September
2008

Osarenkhoe
Database Marketing & Customer Strategy Management Vol. 15,
3, 169–190 © 2008 Palgrave Macmillan 1741-2439170
Bolton 1 suggests that CRM does not go far
enough in changing the underlying culture
and systems of an organisation. The aim of
this paper is not to condemn previous
studies on implementation of strategic
decisions such as customer-oriented strategy.
It is frequently argued in extant literature
that endowment with fi nancial and physical
resources is the main source for fi rms to
attain sustainable competitive advantage. 4 – 11
Comparatively fewer attempts have been
made to examine the role of socially
complex phenomenon such as the
prevailing culture in the organisation in
creating value for the customers and fi rms.
To bridge this gap, this paper uses a
process-oriented framework, inspired by the
resource-based view, to highlight the
business culture of an insurance company
that has achieved competitive advantage in
the Swedish market as the company with
the most satisfi ed customers. Against this
background, the fi rm is viewed as a unique
bundle of intangible assets and resources
that, if utilized in distinctive ways, can
create sustainable competitive advantage.
This contribution is in the form of a
conceptual framework, drawing on the

resource-based perspective and signifi cant
concepts of organisational learning and
learning organisation. Although the
framework is offered as a descriptive and
analytical device rather than as a prescriptive
model, it highlights the implementation
elements of strategic decision (customer-
intimacy business philosophy) to encompass
a number of categories such as ‘ content ’ ,
‘ context ’ , ‘ process ’ and ‘ outcome ’ .
The business environment is undergoing
cataclysmic changes — with lifestyles
shifting drastically, purchasing power
increasing at an increasing rate and
consumer buying behaviour changing
rapidly. 12 The marketplace has also become
more challenging, with more and more
fi rms entering the market and competition
getting tighter and keener. These changes
in the environment have forced marketers
to embrace new approaches in order to
address the company ’ s need for long-term
growth and survival. For example, all
business functions increasingly see their role
as one of contributing to the creation of
customer value in a competitive market. 13
Consequently, there is a keen interest
among researchers in understanding the
reasons for profi tability and market success.
Historically contrasted with the
production and sales orientation, the
customer concept is considered to be a
philosophy of doing business that should

constitute a major part of a successful fi rm ’ s
culture. 11,14 For example, Lee et al . 15 argue
that the benefi t of managing customer
relationships by inputs (acquisition and
retention costs) and outputs (revenues) for
each customer is that marketing managers
can better prioritise their efforts by
examining the return on marketing
investment and thus better differentiate
customers by their relative benefi ts and
costs. In the light of this, it is assumed in
this paper that the goal of fi rms applying
customer-intimacy philosophy is not mainly
profi t maximisation or high market share,
but rather the ‘ share of mind of the
customer ’ . The main focus of such fi rms is
on consumer attitudes and behaviours,
customer experience, psychographic
variables and the cultural environment.
Hence, a customer-intimacy philosophy
defi nes a distinct organisational culture that
puts the customer in the centre of the
fi rm ’ s thinking about strategy and
operations. Hence my research question is
as follows:
What characterises the culture of a
market-oriented organisation applying a
customer-intimacy philosophy?
To answer this question, a Swedish company
that has won the ‘ Company with the most
satisfi ed customers ’ award for ten
consecutive years has been investigated. The
process-oriented framework is used to

—
The culture of a market-oriented organisation
operationalise the research question, thereby
showing how cultural reasoning can inform
and develop useful insights with regard to
strategies for dealing with a fi rm ’ s internal
and external environments. This paper
further highlight the notion that, unlike
fi nancial and physical resources,
organisational culture is hard for
competitors to imitate, which makes it a
powerful source of sustainable competitive
advantage. It also emphasises that sustainable
competitive advantage can be achieved
through socially complex phenomena or a
culture, which make a customary imitable
idea imperfectly imitable.
The rest of this paper proceeds as follows:
First is the theoretical lens, which consists
of a review of contributions to business
strategy implementation framework that can
be used to highlight what characterises the
business culture of a fi rm applying a
customer-intimacy business philosophy. The
framework developed is used as an
organising scheme for the empirical fi ndings
and data analysis. In the Methodology
section, the data collection process and an

operational defi nition of customer-intimacy
business philosophy are presented.
Thereafter, a presentation and discussion of
the fi ndings are carried out. The paper ends
with concluding remarks and a discussion of
the implications of the study.
LITERATURE REVIEW AND
THEORETICAL FRAMEWORK
Three contributions to modern business
strategy are reviewed in brief, not
exhaustively. Thereafter, two paradigms in
marketing are reviewed to show how they
offer complementary, and in some cases
unique, contributions to strategy theories.
The framework presented later in this
section, which highlights what characterises
the culture of a market-oriented
organisation applying a customer-intimacy
philosophy, facilitates the grouping of the
implementation elements of strategic
decision (customer-intimacy philosophy) to
encompass a number of categories such as
‘ content ’ , ‘ context ’ , ‘ process ’ and ‘ outcome ’ .
These classifi cations, which are supported
with literature, form the basis of the
theoretical framework. The theoretical lens
highlighted enables the focus of attention
on the inside of fi rms and thus resources
and assets embodied in, for example, the
people and culture that underlie any
advantages on the product market.
Theoretical approaches to modern
strategy

According to Hunt and Lambe, 7
contributions to modern business strategy
have come from a broad range of
disciplines, including economics, strategic
management, organisational behaviour and
operations management. 16 – 25 Three
dominant theoretical approaches to modern
strategy (industry-based theory, resource-
based theory and competence-based theory)
are recognised in Hunt and Lambe ’ s paper. 7
I am aware that Bain ’ s book, 26 when
combined with the works of Mason, 27
forms the basis of industrial organisation
economics, which postulates that structure
determines conduct, which determines
performance. Industry-based theory of
strategy, as exemplifi ed by Porter, 19 turns
industrial organisation economics ‘ upside
down ’ because Porter ’ s ‘ fi ve forces ’
framework maintains that the profi tability of
a fi rm in an industry is determined by the
threat of new entrants to the industry, the
threat of substitute products or services, the
bargaining power of its suppliers, the
bargaining power of its customers and the
intensity of rivalry among its competitors.
As far as competence-based theory, the
second internal factor theory of business
strategy, is concerned, it must be mentioned
that the term ‘ distinctive competence ’ can
be traced to Selznick, 28 and was used by
Andrew 29 in the SWOT model to refer to
what organisations could do particularly
well, relative to their competitors. Prahalad
and Hamel, 30 however, argue that ‘ the fi rm ’

Osarenkhoe
should be viewed as both a collection of
products and a collection of competences
because ‘ in the long-run, competitiveness
derives from an ability to build, at lower
cost and more speedily than competitors,
the core competences that spawn
unanticipated products ’ . Core competences
(1) provide access to a wide variety of
markets, (2) make a signifi cant contribution
to customers ’ perceptions of benefi ts and (3)
are diffi cult for rivals to imitate. It is from
core competences that both core products
and ultimate, end products emerge, because
core competences, unlike physical assets, do
not deteriorate with use but are enhanced
as they are applied and shared ( Ibid ., p. 90).
Resource-based perspective
Competence-based theory complements the
resource-based theory because it explains
how fi rms develop ‘ strategies to exploit
these … (resources and), consideration has
been given to the idiosyncratic nature, the
links between them and the activities that
utilise them ’ 31 cited in Hunt and Lambe 7
(p. 22). A central assumption in the
resource-based view (which focuses on the
inside of fi rms and the resources and assets

embodied in, for example, people,
machinery and culture that underlie any
advantages on the product market) that
differentiates it from the industrial
organisation views (embodied in, eg, the
fi ve forces model, 19 is that industries are
heterogeneous and resources are imperfectly
mobile). 23 – 25,32 Firms also differ from each
other because they have different resource
endowments. Unlike Michael Porter,
resource-based proponents argue that
various types of competitive advantage can
be held simultaneously by multiple fi rms
because competitive advantage is a function
of or is determined by individual resources.
The resource-based perspective views the
fi rm as a unique bundle of assets and
resources that, if utilised in distinctive ways,
can create competitive advantage. In this
view, a resource with the potential to create
competitive advantage must meet a number
of prerequisites, such as value, rarity,
imitability and organisation. 24,33 Hence, the
ease with which a valuable resource
possessed by a fi rm can be replicated by
current and potential competitors entails the
imitability prerequisite. A resource is
valuable if it allows the fi rm to exploit the
opportunities or nullify the threats in the
external environment. For the resource-
based school, success is reliant upon the
reciprocal action between these external and
internal fi ndings, analysis and strategies.
While most of the traditional theories on

strategic management do not attempt to
look inside the company, in contrast, the
resource-based perspective highlights the
consensus and match between the external
market context in which a company
operates and its internal capabilities and all
the theories and concepts that fi t into that
perspective.
Figure 1 below is a conceptual
framework inspired by resource-based and
organisational learning schools. 24,33 – 36 The
dimensions of strategy (context, content,
process and outcomes) depicted in Figure 1
is adopted as an organising scheme for the
theoretical framework: the empirical data
collection and fi ndings in particular and to
guide the exploratory objective of this
paper in general. The framework shows that
the characteristics of, and developments in,
the external (exogenous) infl uence the
strategic context and force the companies to
develop new strategic direction. In fact,
Pettigrew 34 stresses that formulating the
content of any new strategy inevitably
entails managing its context and process.
Context is divided into outer and inner
context. The outer context refers to the
social, economic, political and competitive
environment in which the fi rm operates.
Inner context refers to the organisational
structure, corporate culture and political
context within the fi rm through which
ideas for change have to proceed.
Organisational learning implies the ability of

the project implementers and the whole
organisation to learn from the process. The
characteristics of, and changes in, the
external and internal context have an
impact on the outcomes. The characteristics
of the process variables, and how they are
used, determine the outcome of the
implemented initiative.
Previous researchers, according to
Okumus, 36 have grouped strategy
implementation elements into a number of
categories such as ‘ content ’ , ‘ context ’ , ‘ process ’
and ‘ outcome ’ . Strategic content encompasses
the strategic direction and the quest to
develop new strategies. Strategic context , on
the other hand, is viewed to be the domain
where strategies are initiated and
implemented and thus the variables in this
grouping are the enablers of the
implementation process. They are less
controllable than the process variables. 37
The operational process variables (eg resource
allocation, communication, people and
incentives, monitoring and feedback, and
external partners that provide knowledge
and assist in competence building) can, in
the short run, be controlled by companies

and they play a vital role in the
implementation process because of their
direct involvement in process. According to
Okumus, 36 the major difference between
the context and process variables is that the
latter are primarily used and employed in
implementing decisions, while context
variables are not primarily used but are
taken account of due to obstacles and
problems in the implementation process.
The expected results of the initiated
strategic initiative are regarded as the
outcome variables (outcome of the market-
oriented strategy and customer-intimacy
philosophy).
The strategic content and strategic
direction: Two streams in marketing
Market orientation
The conceptualisation of market orientation
is still largely based on the frameworks
developed by Jaworski and Kohli, 9 Kohli
et al ., 38 Narver and Slater 39 and Narver
et al . 5 According to Jaworski and Kohli, the
generation and dissemination of market
intelligence, as well as the responsiveness to
ENDOGENOUS
CONTEXT
ORGANIZATIONAL
STRUCTURE
ORGANIZATIONAL CULTURE
AND LEARNING

STRATEGIC/ORGANIZATIONAL
PROCESS
STRATEGIC CONTENT
STRATEGIC DIRECTION
STRATEGIC OUTCOME
EXOGENOUS
CONTEXT
Figure 1 : A conceptual framework to highlight what
characterises the business culture of a fi rm applying a
customer-intimacy business philosophy
Osarenkhoe
market intelligence, have to be carried out
cross-functionally. A market information
system that facilitates acquisition of
knowledge on actual and future needs of
the customers, dissemination of the acquired
knowledge cross-functionally, the affi rmation
of competitive intelligence, and environment
scanning is a fundamental consideration
during implementation of the market
orientation construct . Consequently, the
need for organisations to develop a business
system whereby information becomes
strategic is reinforced in order to promote

business effi ciency. Narver and Slater 39
describe market orientation as ‘ the culture
that most effi ciently creates the necessary
behaviours within an organisation conducive
for the implementation and integration of a
market orientation construct throughout the
organisation and which delivers superior
value for the buyers ’ . This attitudinal
perspective implies that organisations
maintain and use information on customers,
competitors and the trends in the
environment, which infl uence the
employees ’ attitudinal response and actions
towards the customers and competitors, and
largely form the organisational culture. 8 The
culture developed permeates the
organisation ’ s marketing strategies and
activities in the market to create superior
value in the industry, which invariably
creates competitive advantages for the
organisation.
A market-oriented strategy enables the
organisation-wide generation of market
intelligence pertaining to current and future
customer needs, dissemination of this
intelligence across departments, and
organisation-wide responsiveness to it. 9,40
The fundamental imperative of market
orientation strategy is therefore that, in
order to achieve competitive advantage and,
thereby superior fi nancial performance,
fi rms should systematically gather
information on current and potential
customers and competitors and use this
information in a coordinated, cross-

departmental fashion to guide strategy
recognition, understanding, creation,
selection, implementation and modifi cation. 7
Hence, market-oriented organisational
culture prompts proactive innovation by
enabling fi rms to anticipate potential market
segments and envision market offerings that
might be attractive to such segments, as well
as prompting the need to acquire, develop
or create the required resources to produce
the offerings.
Relationship marketing
The past decades have witnessed the
inception of a major directional change in
both marketing theory and practice,
considered by Webster 41 to represent a
‘ fundamental reshaping of the fi eld ’ and by
others to be a genuine paradigm shift. 14,42,43
The turn is toward relationship marketing, a
concept that encompasses relational
contracting, 44 relational marketing, 45
symbiotic marketing, 46 internal marketing 47
and the impact of emotional intelligence
and trust on performance. 48 The relationship
marketing concept differs from market
orientation in that it places emphasis on
other areas of marketing activities, aiming to
enhance marketing productivity by
achieving effi ciency and effectiveness
through developing relatively long-term
relationships with customers, suppliers,
employees and competitors. 43 For that
reason, to achieve competitive advantage
and superior fi nancial performance, fi rms

should develop a relationship portfolio or
‘ mix ’ that complements existing
competences and enables it to occupy
positions of competitive advantage ( ibid. ).
Gr ö nroos 42 sees relationships as strategic,
meaning that interactive marketing becomes
a question of strategy — its origins,
development and continuation being a
strategic focus for the business organisation.
For relationship marketing and market
orientation concepts, focus on increasing
the lifetime value — the net profi t a
company accrues from transactions with a
given customer over the time that the
customer has a relationship with the
company — becomes predominant in
today ’ s marketing strategies.
Marketing strategy and
organisational culture (endogenous
or organisational context and
organisational process)
Organisational culture is described as one of
the socially complex resources that enable
an organisation to conceive, choose and
implement strategies in accordance with the
values, beliefs, symbols and interpersonal
relationships possessed by individuals or

groups in a fi rm. 22 The advantage of having
a strong organisational culture can provide
the necessary leadership to ensure that staff
attain high levels of performance. 49,50
According to Lee, 49 organisations benefi t
from having highly motivated employees
dedicated to common goals, and fi rms with
a strong culture outperform fi rms with a
weak culture. In this regard, a strong culture
is defi ned in terms of the degree of
agreement and commitment to
organisational values and norms. Firms with
sustained superior fi nancial performance are
typically characterised by a strong set of
core managerial values that defi ne the ways
they conduct business. 10,22 This is
determined by a fi rm ’ s key intangible
resource: the culture of the organisation.
This strategically important resource relates
to the organisation ’ s values, traditions and
social norms, which are potentially very
valuable. 51 Culture is one of those vague
qualities that is diffi cult to measure or
describe with precision, but it nevertheless
exists and sets the tone for managerial and
employee behaviour. In a sense, the term
describes how people view their workplace
and how things are done. Unlike fi nancial
and physical assets, organisational culture is
diffi cult for competitors to imitate, which
makes it a powerful source of sustainable
competitive advantage. 23 The degree to
which the current organisational culture
contributes to the performance of the
critical internal processes determines its

strategic signifi cance and thus its value to
the organisation. When all employees have a
commonality of purpose, a shared vision
and an understanding of how their personal
roles support the overall strategy, the
organisational culture serves to create
alignment in the company. 10
Organisational learning (strategic
outcome)
There is an argument emerging that being
market oriented may not be enough, and
that the ability of an organisation to learn
faster than its competitors may be the only
source of sustainable competitive
advantage. 52 Organisational learning is
considered by many scholars a key to future
organisational success. 53 Learning is a
characteristic of an adaptive organisation,
that is, an organisation that is able to sense
changes in signals from its internal and
external environments and to adapt. 54
Several models have been proposed that
facilitate understanding of organisational
learning. For example, Nonaka and
Takeuchi 55 developed a four-stage spiral
model of organisational learning. They start
by differentiating Polanyi ’ s 56 concept of
‘ tacit knowledge ’ from ‘ explicit knowledge ’
and describe a process of alternating
between the two. Tacit knowledge is
personal, context-specifi c, subjective
knowledge, whereas explicit knowledge is
codifi ed, systematic, formal and easy to
communicate. The tacit knowledge of key
personnel within an organisation can be

made explicit, codifi ed in manuals, and
incorporated into new products and
processes. 55 They call this process
‘ externalisation ’ . The reverse process (from
explicit to implicit) they call ‘ internalisation ’
because it involves employees internalising
an organisation ’ s formal rules, procedures
and other forms of explicit knowledge.
They also use the term ‘ socialisation ’ , to
denote the sharing of tacit knowledge, and
Osarenkhoe
the term ‘ combination ’ , to denote the
dissemination of codifi ed knowledge.
According to this model, knowledge-
creation and organisational learning take
the path of socialisation, externalisation,
combination, internalisation, socialisation,
externalisation, combination … etc in an
infi nite spiral ( ibid .).
One of the salient features of the
contributions reviewed above is their
embeddedness in the resource-based school
of thought, which is characterised by value
(fosters a fi rm to exploit both opportunities
and weaknesses in the business milieu);
rarity (uniqueness of competitors that
possess a valuable resource); imitability (ease
with which this valuable resource can be

copied by competitors); and organisation
(the way a fi rm is organised in order to
better exploit its unique resources such
as its organisational culture and human
resources). Strategy is discussed in the
context of two streams in marketing,
organisational culture and organisational
learning. A common denominator for all
the frameworks is that there must be a ‘ fi t ’
among the elements of the strategy
implementation frameworks if the
implementation process is to be successful.
This process, according to Pettigrew, cannot
be understood unless the context within
which the process has emerged is studied
over time. The longitudinal scope of this
study is described in the next section.
METHODOLOGY
The fi ndings reported in the next section
constitute the second paper from a six-year-
long (2001 – 2007) longitudinal case study.
The fi rst paper from this longitudinal study,
entitled ‘ Customer-centric Strategy: A
longitudinal study of implementation of a
customer relationship management solution ’ ,
is published elsewhere. The case company
for the previous and current papers was
L ä nsf ö rs ä kringar (LF), a Swedish insurance
company (henceforth known as LF), which
has, during the last ten years, won the
‘ company with the most satisfi ed customers ’
award. The award is based on a survey
conducted yearly by the Swedish Quality
Index (SKI) and analysed by the Stockholm

School of Economics. The SKI operates
under the jurisdiction of the Institute of
Quality Development and European
Performance Satisfaction Index. Parameters
measured in the survey include the
following: level of satisfaction, image,
customer expectations, product and service
quality, price worthiness and loyalty. LF
offers a broad range of policies and fi nancial
services for companies and private
individuals. Although it was not a priority
to speak with LF ’ s customers to verify
whether LF is indeed enacting a successful
‘ customer-intimacy ’ philosophy, 30 of the
company ’ s customers were among those
who participated in the focus group
discussion. During the presentation of the
fi ndings in the next section, viewpoints
from all categories of LF ’ s customers and
employees are reported. Consequently, no
distinction is made between viewpoints
from customers and employees. For
confi dentiality purposes, the actual names of
the respondents (both internal and external
customers of LF) are disguised, and they
will be referred to as key informants during
the presentation of the fi ndings.
A qualitative research strategy was
followed and an in-depth case study
approach was adopted in this study. This was
because only qualitative research methods
were believed to be the most appropriate to
allow the detailed analysis of complex
change cases. 36,57,58 This allowed the
researcher to penetrate their realities and

uncover issues of relevance in understanding
the substantive research question: What
characterises the business culture of a fi rm
applying a customer-intimacy business
philosophy? A number of researchers 59,60
call for more fi eld-based research that
involves case studies or action research
drawing on material from the multiple
exchange episodes that constitute
relationships and offer insights into the
processes of relationship initiation and
maintenance. Hence, empirical data in this
study were drawn from the following
sources:
Focus Group discussion with various
categories of customers and employees at
LF. A total of ten groups were formed.
There were six members in each group, and
a session with each group lasted for two
hours. A moderator guided the group
through a discussion that probed what
constitutes the business culture of LF and to
what extent LF applies a customer-intimacy
business philosophy. In compliance with
requirements as to which focus group
interview should be conducted, the
discussion was observed from behind a one-

way mirror. Participants could not see out,
but the researcher could see in. Each group
of respondents, which included employees
at LF and their customers, gathered in the
same room. They were screened to ensure
that they were a representative subgroup of
employees and market segment. For
example, the customers were chosen
randomly by the researcher from the
customer database of LF, including ten
customers representing the industrial
segment and twenty customers from
consumer market segments and 30 LF
employees from strategic, operative / middle
management and frontline or customer-
facing levels in the company. A video
camera recorded each of the discussions
carried out in each group. Transcripts were
created from the ten video tapes from the
ten separate sessions. Questions were asked
in an interactive group setting where
participants were free to talk with other
group members. The discussion was loosely
structured, and the moderator encouraged
the free fl ow of viewpoints on the main
theme for discussion. ‘ Having key themes
and sub-questions in advance lies in giving
the moderator or researcher a sense of order
from which to draw questions from
unplanned encounters ’ . 61 Corbetta 62
explains semi-structured interviews as
follows: ‘ The order in which the various
topics are dealt with and the wording of
the questions are left to the interviewer ’ s
discretion. Within each topic, the

interviewer is free to conduct the
conversation as he thinks fi t, to ask the
questions he deems appropriate in the
words he considers best, to give explanation
and ask for clarifi cation if the answer is not
clear, to prompt the respondent to elucidate
further if necessary, and to establish his own
style of conversation ’ .
Face-to-face interviews encompass 60
employees from strategic, operative / middle
management and frontline or customer-
facing levels in the LF. Each face-to-face
interview lasted for two hours and was
conducted at different times and dates on
the premises of LF. The interviews were
recorded with a tape recorder.
Guest lectures : Data were also collected
during the six lectures delivered by top
management staff of LF in my course,
CRM, delivered between 2001 and 2007.
Each lecture was two hours long, including
time for questions and discussion of the
main theme: the culture of a market-
oriented organisation. A fi nal interview with
the Managing Director of LF was held in
April 2007.
The following themes served to initiate
open-ended discussions on aspects such as
how customer satisfaction and dissatisfaction
are determined, including how these
determination methods differ among
customer groups; how fi rms ensure that
their measurements capture actionable

information for use in exceeding customers ’
expectations, securing their future business
and gaining positive referrals; how fi rms use
customer satisfaction and dissatisfaction
information for improvement; how fi rms
follow up with customers on products,
services and transaction quality to receive
prompt and actionable feedback; and how
companies keep their approaches to
determining satisfaction current with
Osarenkhoe
business needs and directions; Customer
Relationship building (including how
companies build relationships to acquire
customers, to meet and exceed their
expectations, to increase loyalty and repeat
business, and to gain positive referrals); how
key access mechanisms enable customers to
seek information, conduct business, and
make complaints; how companies determine
key customer contact requirements for each
mode of customer access; how companies
ensure that these contact requirements are
deployed to all front offi ce and back offi ce
employees; etc .
The themes addressed during the
interviews are in line with the parameters
(mentioned above) suggested by the

Swedish Quality Index, the Institute of
Quality Development and European
Performance Satisfaction Index and the
conceptual framework ( Figure 1 ). The
framework is used as an organising scheme
for the empirical fi ndings and data analysis.
Its salient features include exogenous
(environmental) context because the nature
of, and developments in, the external
environment infl uence the strategic context
and force the company to develop new
initiatives; the strategic direction or strategic
decision to be implemented (strategic
content); endogenous or organisational
context issues such as organiational
structure, formal and informal structures /
organisational culture, values, organisational
learning (organisational or strategic process);
strategic outcome (outcome of the
implemented strategic initiative
(relationship-oriented organisation applying
customer-intimacy philosophy) . I am aware
of the fact that qualitative fi eld research
such as in-depth interviews and case studies
play an essential part in refi ning the
conceptual defi nitions and elaborating the
content domains of each concept or
construct. 55
In this study, the operational defi nition of
customer-intimacy philosophy does not only
encompass increasing customer satisfaction,
because the fi rst step toward a customer-
intimacy philosophy is moving beyond the
standard goal of satisfying customers. 6 Firms

need to be more selective about whom they
sell to, and they must strive to deliver the
most valued products to the markets that
are most receptive. A common denominator
in the defi nitions offered by Peelen 63 is that
customer-oriented companies consistently
embrace three concepts. First, they know
they can become customer oriented only by
learning everything there is to learn about
their customers at the most granular level,
creating a comprehensive picture of each
customer ’ s needs — past, present and future.
Secondly, they know that this picture is
useless if employees cannot or will not share
what they learn about customers, either
because it is inconvenient or because it does
not serve their interests. Finally, company
executives use this insight to guide not only
their product and service decisions, but
their basic strategy and organisational
structure as well. It is pertinent to mention
that the customer concept or customer-
intimacy philosophy (in this case) is not a
strategy, but a philosophy that is theorised
to be a key element of successful fi rms ’
cultures. 50,64,65 Hence, customer-intimacy
business philosophy defi nes a distinct
organisational culture that puts the customer
in the centre of the fi rm ’ s thinking about
strategy and operations. Thus, the customer-
intimacy philosophy is a business culture
that can guide the formulation and
implementation of business strategy
(customer-oriented strategy).
FINDINGS

A relationship – focused organisation
applying customer-intimacy
philosophy (The Strategic Content
and Strategic Direction)
What distinguishes LF from most other
companies is not its commitment to
continuous improvement. It would be
diffi cult to fi nd seriously competitive
companies today that do not claim to
embrace a continuous improvement
philosophy. What distinguishes the people
at LF is their behaviour both toward their
customers and each other, and the
remarkable attention they pay to every
customer touchpoint. According to a key
informant, ‘ in a customer-intimacy
philosophy, the most important thing is to
go beyond the standard goal of increasing
customer satisfaction. Rather, it is vital to
develop insight not only on the actual value
of the customers but on the strategic value
as well, thus enabling one to determine
and anticipate the current and future needs
of the customers ’ . One of the key
informants says the salient feature of the
prevailing culture at LF is the ‘ constant
push to offer customers the greatest

possible advantage, which inevitably leads
LF into close partnerships that go beyond
discrete sales to day-to-day involvement in
building and improving the customers ’
business ’ .
Trust and customer value-building
approaches
Being an insurance company, the core
concept of the customer-intimacy
philosophy at LF is the level of trust in
their relationships with customers on the
one hand, and systems thinking on the
other hand. According to a key informant,
‘ the customer is always right philosophy
prevails in the company until proven
otherwise ’ . LF sees its customers as clients
rather than accounts, and therefore creates
value in partnership with the customers.
Having a local presence is an advantage for
LF in terms of the ability to effectively
manage its relationships with customers.
According to one of the key informants,
‘ one of the prerequisites to be satisfi ed in
order to reap the benefi ts associated with
being market oriented is that the strategy is
aligned with the culture of the company ’ .
An advantage of a strong relationship with
customers is low administrative costs and
loyal customers. One of the key informants
speaks about LF ’ s unique position as a local
company, and that they work for the
customers ’ best interests and that they do
not sell products, they sell security. This key
informant places emphasis on reliability, and

believes that the most important reasons for
being recognised as insurance company of
the year and the company with the most
satisfi ed customers many years in a row are
trust, compassion and consideration.
According to a key informant, there are
‘ two components to instilling trust through
ethical behaviour. You have the most control
over the fi rst — your actions as a leader.
The second is more troublesome — how
your employees interact with customers and
suppliers. Their actions will determine how
trustworthy your company is perceived to
be. If you notice coolness in your
employees, customers or suppliers, you
haven ’ t been paying enough attention to
building trust. That is a signal that indicates
distrust, and you ’ d better work fast to
address its causes. Being an ethical company
is a job that is never complete; it ’ s a
constant process rather than an end
product ’ .
All the respondents believe that LF does
not differentiate between customers, that is,
by dividing them into various groups, for
example, gold and silver customers. But they
do reward loyal customers and those who
choose to buy many products, by offering a
discount system. They have special offers for
those who choose to fi nance and insure
their houses with LF .
Dialogue and learning relationship
To have two-way communication with its
customers, LF uses, among other channels, a

newsletter that informs the customers about
the entire product portfolio and other
developments at LF. They have entered a
new market: banking. Going into banking
means that, when visiting LF, customers are
able carry out many of their errands at the
same place: one stop shopping. According
Osarenkhoe
to one of the key informants, the outcome
of the company ’ s customer-intimacy
philosophy is easily noticeable through
feedback from customers. LF ’ s website
contains information about their products,
which include insurance and banking. The
customer can easily use the site to look for
the terms, conditions and prices, and it is
also possible to request tenders online. They
also have an internet bank, where customers
can log on and do their banking. LF ’ s main
medium for communicating with the
customer is the telephone. After that comes
the face-to-face meeting. E-mails and
internet are also gradually becoming a
popular medium to communicate with
customers. An information technology
platform that LF uses is its new CRM
system, which enables the administrator to
see all the necessary information about the
customer in one place. The old system did

not have this kind of feature, where you
could gather all the information in one
place. As a result, the employees ’ jobs have
been made easier and relationships between
employees are good, which in turn affects
the customers. According to a key
informant at LF, good CRM means positive
feedback from customers and good CRM is
created when the employees enjoy their
work.
Organisational culture and
organisational process (endogenous
or organisational context)
In the past, there have been cultural
problems at LF, where the employees saw
their jobs more as service oriented rather
than customer relationship oriented. LF
changed this transaction-oriented
perspective by creating a common
customer-relationship-oriented culture. To
create this common culture, LF advocates
three things:
(1) Start with the managers (executives) :
A key informant feels it is important that
management and the directors set the
examples ( management by example ) — to
show everybody that you mean what you
say. ‘ It ’ s the same as raising children — they
do what you do, not what you tell them to
do ’ . One concrete example is that this key
informant takes every suggestion seriously,
the good ones as well as the bad ones, no
matter how minor they may seem. He

answers every request and phone call. No
customer contact is insignifi cant. According
to the key informant, employees at strategic
and operative levels in the company are
aware that culture within a relationship-
oriented organisation like LF is typifi ed by
(1) People daring to show their true selves.
They make it clear that they like people
and are service-oriented; (2) Ensuring that
overtures are made in the proper manner;
(3) Showing a suffi cient level of empathy in
a way that creatively displays a unique and
surprising behaviour that facilitates the
creation of value for the customer, in a way
that is not easily emulated by our current
and potential competitors; (4) The people
customers meet being sincere — otherwise
customers could get the impression that
they are being manipulated in the
relationship by a marketer.
(2) Convince people : A key informant
thinks that what all good company cultures
have in common is the need for the
employees to feel that they are working for
the customer — that he or she gets her pay
check from the customer. According to this
key informant, ‘ compassion and
consideration for the customer are key
concepts, something that will hopefully
result in a long-term relationship. The will
to understand the customer and to give him
or her an experience of professionalism,
personality and commitment are things that
cannot be expressed verbally, they have to
be lived and repeated. All employees abide

by the norms and values that apply in the
company. They have become emotionally
involved in the organisation and are
prepared to make that extra effort in the
relationship and the emotional attachment
they have with the company ’ .
LF does not have a formal dress code for
employees. A key informant believes there is
an unspoken one. His impression is that this
code is quite consistent throughout the
organisation and refl ects fairly well on the
customers that LF employees meet. It is
more important to make the employees
aware of what the company they work for
stands for — differentiation by creating
value for the customer by applying a
customer-intimacy philosophy. Moreover,
according to the key informant, ‘ all our
employees are aware that our business
philosophy, a customer-intimacy philosophy,
entails moving beyond the standard goal of
satisfying customers. It is about taking
responsibility for the customer ’ s results. The
employees are aware that companies who
employ a customer-intimacy philosophy
consistently embrace the following concepts:
they know they can become market-
oriented only if they learn everything

there is to learn about the customers at the
most granular level and create a
comprehensive picture of each customer ’ s
needs — past, present, and future . For
example, in LF, culture sensitivity has
become an integral part of our front-line
employees. The result is a down-to-earth
and simple culture. “ Keep it simple ” is a key
phrase in the culture ’ .
One example of the new culture versus
the old culture is as simple a thing as
answering the phone. In the past, the
receptionists and switchboard were
transaction-oriented. In the new culture, the
customer comes fi rst and answering the
telephone is a priority. To become more
customer-focused, the company has
recruited some new service-minded workers
and the ‘ old ’ customer service group now
works with more technical customer service
tasks. A key informant does not think that
having a strong culture is a danger as long
as the culture works in the ‘ right ’ direction.
On the other hand, a culture can become a
danger to business. An example of this can
be seen in many large successful companies
with strong cultures where they take their
customers for granted. If a new competitor
arrives in the market, it may be necessary
for the company to change their strategy.
A culture that is too strong may resist this.
Regarding culture, it is also important not
to confuse what you want with what you
have . It is important that you have an open

climate where the employees can tell their
managers what is wrong. It is also important
that the employees are allowed to make
mistakes. It is vital to remember, however,
that you rarely get the whole picture from
your employees; there is often something
that is left out.
(3) Change the organisational structure : LF
has created a fl at organisation structure with
decentralised decision-making, where the
local offi ces in the district have more
authority. This allows for fewer stages in the
decision-making process. The key informant
also notes ‘ that having offi ces close to the
customers and letting the different offi ces
make decisions for them helps to control
the culture in a fi rm with a fl at
organisation. The staff are able to adapt their
work as necessary and the focus is on
availability ’ . LF has done a lot of work with
the calls waiting to be served. That was
important from a CRM standpoint.
According to the informant, ‘ LF is aware
that, to promote fl exibility in the company,
it is important to have a learning
organization culture that is able to make
changes quickly and adapt rapidly to
changes in the organization but that is also
able to adopt changes from the
environment. LF works with this at the
organizational level. They feel that if the top
management is united, it will show
throughout the whole organization and that
this will create a sense of security. In
addition, the company is also aware that it

is not enough that top management have a
strong willingness to change. The
organization must accept and be mature for
changes, and people must accept and be
open to these changes ’ .
Osarenkhoe
According to Daft, 66 the fi eld of
management is undergoing a fundamental
shift worldwide — a transition from a
modern to a post-modern organisation
paradigm. The views expressed by Daft are
in line with the prevailing climate at LF. LF
has transformed from traditional hierarchical
management to full participation by every
employee. According to one key informant,
‘ in our previous centralised organisation,
head offi ce (or a few senior managers)
retained the major responsibilities and
authority. Conversely, LF ’ s current
decentralised organisation allows us to
spread the responsibility for specifi c
decisions across various outlets and lower
level managers, including branches or units
located away from head offi ce / headquarters.
LF also implemented vertical and horizontal
decentralisation. “ Vertical ” means that the
power to make certain decisions is handed
down the hierarchy of the organisation ’ .
Horizontal decentralisation enables LF to

spread responsibility across the organisation.
For example, the implementation of new
technology across the whole business was
the sole responsibility of technology
specialists employed by LF.
According to key informants at LF, the
advantages of a decentralised structure
for LF include the following: Senior
managers have time to concentrate on the
most important decisions, and other
decisions can be undertaken by other
people further down the organisation
structure. Decision-making is a form of
empowerment. Empowerment can increase
motivation and therefore means that staff
output increases. People lower down the
organisational structure have a greater
understanding of the environment they
work in and the people (customers and
colleagues) that they interact with. This
knowledge, skill and experience may enable
them to make more effective decisions than
senior managers. Empowerment enables
departments and their employees to respond
faster to changes and new challenges,
whereas it may take senior managers longer
to appreciate that business needs have
changed. Empowerment makes it easier for
people to accept and make a success of
more responsibility.
Learning organisation (strategic
outcome)
A commonly view held by all employees at

LF is that the management shift that has
taken place at LF has been prompted by
two accelerating trends. The fi rst is the
increasing rate of change brought about by
global competition. Organisations have to
adapt faster and be able to do things well.
The second trend is a fundamental change
in organisational technologies. Traditional
organisations were designed to manage
machine-based technologies, with a primary
need for the stable and effi cient use of
physical resources, such as in mass
production. LF ’ s current organisation is,
however, knowledge-based, which means
that it is designed to handle ideas and
information, with each employee becoming
an expert in one or several conceptual tasks.
Rather than striving for effi ciency, each
employee in knowledge-based companies
must continuously learn and be able to
identify and solve problems in his or her
domain of activity. 59 In this new world
order, the responsibility of management is
to create organisational learning ( Ibid .).
According to a key informant, ‘ at LF, we are
aware that, in our industry, the ability to
learn and change faster than the
competitors may be the only sustainable
competitive advantage. Hence, LF has
redesigned itself toward something called
the learning organisation ’ . It was also
mentioned by the key informants that the
characteristics of and changes in the
exogenous (environmental) context and the
endogenous or organisational context,
which forced the company to develop the

new strategic intent, also have direct impact
on the tangible and intangible outcomes of
the strategic content. The company ’ s ability
to respond to the needs of its internal and
external customers in a more effective way
was enhanced because LF successfully
internalised its strategic intent into its
organisational culture. This strategic intent
invariably resulted in the attainment of a
comprehensive approach for creating,
maintaining and expanding relationships
with internal (employees in the company)
and external customers .
DISCUSSION
A customer-intimacy philosophy
(Strategic intent or content)
Being an insurance company, the core
concept of the customer-intimacy
philosophy at LF is the level of trust in
their relationships with customers. Findings
show that ‘ the customer is always right
philosophy prevails in the company until
proven otherwise ’ . This is in line with
Forbes ’ paper, 67 which considers the value
of customers as an important intangible
asset of a business. ‘ In fact, they are arguably

the most important, for without customers
a business would not exist ’ ( Ibid ., p. 4).
Findings presented above also show that LF
creates value in partnership with customers.
LF ’ s approach is in line with Smith ’ s
conceptualisation of ‘ practitioners of systems
thinking ’ . 68 A practitioner, according to
Smith, must understand a new defi nition of
a system, especially when dealing with new
market forces and empowered customers,
because traditionally a system is a whole
whose elements continually affect each
other and operate towards a common goal.
The structure is the pattern of
interrelationships among elements of the
system and is typically invisible until
someone discovers it. LF wants to build
relationships with its customers in order to
retain loyal customers and maintain low
administrative costs. For example, in the
previous section, three customer value-
building approaches as specifi c marketing
tools to develop stronger customer bonding
and satisfaction that prevail at LF are
presented. Theoretical support for this can
be found in previous studies. 7,15 They
support the notion that strong customer
relationships lead to lower costs for the
company because loyal customers build
business by buying more, are less price-
sensitive and provide good word-of-mouth
advertising. Extant literature also states that
the focus has historically been on attracting
new customers. This has also been a
problem for LF, but they have now realised

the importance of keeping, taking care of
and developing their customer relationships.
Both the theoretical and the empirical
fi ndings show that trust is a key factor for a
good relationship between the customer and
the company. Indeed, trust is one of the
reasons why customers remain loyal to a
company. Previous studies 11,48 also support
the importance of trust in relationship
strength. Without this trust, one of the
cornerstones for building a relationship is
gone.
Organisational culture and
strategic process (exogeneous
and endogenous or organisational
context)
To make its strategic intent (the high-level
statement of the means by which LF will
achieve its vision — a customer-intimacy
business philosophy) a reality, LF began
seeking ways to adapt its culture to new
conditions prevailing in its environment.
This approach supports those posited in the
literature. 1,14 The fi ndings show that LF
implemented a number of measures in its
organisational context. For a decentralised
organisational structure, business process and
value systems that enable all members in
the fi rm to work and collaborate cross-
functionally. Organisational culture is
defi ned earlier in this paper as the set of
shared values and norms that control
organisational members ’ interactions with
each other and with suppliers, customers
and other people outside the

Osarenkhoe
organisation. 22,50 LF demonstrates that just
as an organisation ’ s structure can be used to
achieve competitive advantage and promote
stakeholder interests, an organisation ’ s
culture can be used to increase
organisational effectiveness. This is because
organisational culture controls the way
members make decisions, the way they
interpret and manage the organisation ’ s
environment, what they do with this
information, and how they behave. 66
Findings show that LF maintains and uses
information on customers, competitors and
the trends in the environment, which
infl uence the employees ’ attitudinal response
and actions towards the customers and
competitors. The culture developed
permeates the organisation ’ s marketing
strategies and activities in the market to
create value for the customers and the
company, which invariably creates
competitive advantages for the organisation.
This attitudinal perspective adopted by LF is
also in line with the views expressed in the
literature. 8,39
A critical point in LF ’ s customer-
intimacy philosophy winning the

endorsement it needed was the involvement
of the different levels of employees as much
as possible. 10,69 In the case company,
culture ’ s competitive value has been
renewed and affi rmed through
communications across various departments.
This is in agreement with the resource-
based perspective, 21,25,70 which emphasises
those resources internal to a fi rm as the
principal driver of the fi rm ’ s profi tability
and strategic advantage. This fi nding is also
related to the work of Jaworski and Kohli 9 ,
who argue that the generation and
dissemination of market intelligence, as well
as the responsiveness to market intelligence,
have to be carried out cross-functionally as
a prerequisite to successful implementation
of market-oriented strategy. Encouraging
creativity and implementation of initiatives
in order to be competitive in a constantly
changing business environment has become
a continual process that has evolved into the
core of the company ’ s culture. 71 Creating a
new culture was important for the success
of LF ’ s customer-intimacy philosophy. This
intangible asset has formed a unique
competitive advantage for its business.
The learning organisation
(strategic outcome)
A learning organisation is an organisation in
which everyone is engaged in identifying
and solving problems, enabling the
organisation to continuously experiment,
and improve and increase its capabilities. 66

Thus, the essential value of the learning
organisation is problem solving, in contrast
to the traditional organisation that was
designed for effi ciency. In the learning
organisation, employees engage in problem
identifi cation, which means understanding
customer needs. 10,52 Employees also solve
problems, which means putting things
together in unique ways to meet customer
needs. The characteristics of learning
organisations are similar to those that prevail
at LF, as demonstrated in the fi ndings
reported in the previous section.
The fi ndings reported earlier show that a
common culture is essential for a
relationship-oriented company. Theory
implies that if the company wants to
establish an effective company culture, the
employees need to learn the organisational
values. 49,72 The fi ndings also show that the
company is aware of the dynamic nature of
the environment and therefore the
employees must instinctively know how to
handle unexpected situations. LF ’ s organic
structure gives a fl at and decentralised
organisation, and thus a more market-
oriented organisation, because a good
relationship with the customer demands
fl exibility and opportunities for the
employees to make their own decisions.
This is in line with fi ndings reported in
Smith. 68 According to Smith, ‘ the degree of
fl exibility which an organisation expends in
the allowance of change is regulated by the

existence of innovation and inertia . Aligning
organizational elements within an
organisation and between an organisation
and environment are important for
competitive success ’ (p. 200). This is
important because there may not always be
specifi c rules on how to meet all customer
demands that can arise. An important part
of LF ’ s culture is that it allows mistakes to
be made, as long as everything works out in
the end for the customer.
CONCLUSIONS AND IMPLICATIONS
The main objective of this paper was to
answer the question of what characterises
the culture of a market-oriented fi rm
applying a customer-intimacy philosophy.
This paper contributes to existing
knowledge by showing how considering
culture can provide information and help to
develop useful insights for practising
managers, particularly regarding strategies
for dealing with a fi rm ’ s internal and
external environments. Also reinforced in
this paper are the notions that, unlike
fi nancial and physical resources,
organisational culture is diffi cult for
competitors to imitate, making it a powerful
source of sustainable competitive advantage,

and that, beside a special business proposal,
sustainable competitive advantage can be
achieved through socially complex
phenomena or a culture, which make a
customary imitable idea imperfectly
imitable. Thus, the fi rm is viewed as a
unique bundle of intangible assets and
resources that, if utilised in distinctive ways,
can create sustainable competitive advantage.
The process-oriented conceptual framework
operationalised in this study facilitated the
illumination of the customer-intimacy
business culture at the case company (LF),
thereby showing that unlike fi nancial and
physical resources, organisational culture is
hard for competitors to imitate, which
makes it a powerful source of sustainable
competitive advantage.
In addition to the above, the following
conclusions and perspectives are also noted:
(1) It seems that strategy in fact embraces
all the critical activities of a fi rm.
Furthermore, a strategy provides a sense
of unity, direction and purpose, as well as
facilitating the necessary changes induced
by a fi rm ’ s environment. A review of
the six critical dimensions that must be
included in any unifi ed defi nition of the
concept of strategy is available in deWit
and Meyer. 35 This paper neither has a
normative ambition nor belongs to the
design, planning or positioning schools
that explain aspects of the origin of
prescriptive strategy. 73 Rather, this paper

is posited within the realm of cultural
or ideological schools that, together
with the entrepreneurial and process
schools, support the view that strategies
are the result of emergent and deliberate
processes. 74,75
(2) The conceptual framework ( Figure 1 )
was used in this study as a descriptive
and analytical device rather than as a
prescriptive model to highlight the
implementation elements of customer-
intimacy philosophy. In light of this,
this paper did not aim to outline ways
in which a company might create a
customer-intimacy business philosophy.
The main objective, therefore, has been
to use a process-oriented framework,
inspired by the resource-based view,
to highlight the business culture of an
insurance company that has achieved
competitive advantage in the Swedish
market as the company with the
most satisfi ed customers. The fi ndings
presented above show how a customer-
intimacy business philosophy and a
continuous improvement ethic are
practised at LF. The programme involved
all levels of staff, from the CEO through
to front-line employees, and established
a sustainable competitive advantage in
the process. It can be concluded that
Osarenkhoe

the strategy has been implemented
successfully, with positive results for the
period LF has been awarded ‘ Company
with the Most Satisfi ed Customers ’
award 1998 to date. The signifi cance
of value creation for internal and
external customers mentioned by the
respondents at LF is also reinforced in
the literature. 76,77 They assert that value
to the customer is a much better means
for delivering excellence and that the
key factors of success for the proper
implementation of a quality management
programme in any organisation lie
within that statement .
(3) Moving from a product and sales
philosophy to a customer-intimacy
philosophy gives a company a
better chance of outperforming the
competition, and the cornerstone of a
well-conceived marketing orientation
is strong customer relationships.
Customer-centred companies are adept
at building customer relationships, not
just at product engineering. 14 Thus,
an understanding of customers, and
potential customers, is fundamental.
This requires a deep appreciation of
current and changing needs and wants
of consumers, something in which
marketers and market researchers claim

a particular expertise. 6 According
to Strebel and Ohlsson, 78 for many
companies, incremental growth is
not suffi cient. The changing business
landscape is forcing corporate leaders to
learn how to reposition their businesses
more fundamentally. Companies need
to be prepared to shift the focus of
their resources between innovation,
operational excellence, effi ciency
and customer-intimacy, depending
on their current business and fi nancial
needs. Operational excellence and
effi ciency is dependent on greater
coordination, leveraging activities in
the business system and removing
slack from the organisation. Customer-
intimacy requires a culture of listening
and networking with resources
directed at building relationships with
customers. 78
(4) No company can succeed today by
trying to be all things to all people. A
company must instead fi nd the unique
value 22,23 that it alone can deliver to a
chosen market. Customers have taken
control of the marketplace and their
expectations for value are rising rapidly.
In this new competitive environment,
they increasingly seek cheaper products,
quicker delivery, premium service and
high quality. In order for a company
to be successful in this new form of
competition, it must have both focus

and discipline. 79 This is in agreement
with the fi ndings reported above and
views expressed in extant literature
on resource-based perspectives, which
emphasise resources internal to the
fi rm as the principal driver of a fi rm ’ s
profi tability and strategic advantage. 24
(5) The fi ndings show that organisations
must continuously fi ne-tune the
compatibility of the strategy and the
corresponding values of its business
culture, and maintain an informed
workforce aligned to the strategy,
working together and sharing knowledge
to help the strategy succeed. This
observation is also conveyed in extant
literature on knowledge management,
discussed in the context of competitive
advantage, 80 quasi-explicit or
formative knowledge as the aftermath
of information society, 81 critical
success factors for implementation of
knowledge management strategies, 82
the conversion of tacit knowledge to
explicit knowledge, 83 and the dynamic
relationships between knowledge
creation, diffusion and utilisation that
occur in collaborative knowledge
networks. 84 This implies that knowledge
management programmes are typically
tied to organisational objectives and are

intended to lead to the achievement
of specifi c business outcomes such as
shared business intelligence, improved
performance, competitive advantage or
higher levels of innovation. ‘ Knowledge
management ’ embodies organisational
processes that seek a synergistic
combination of data and the information
processing capacity of information
technologies that can be enhanced
through creative strategies. The case
company, LF, has communicated clearly
and precisely about corporate culture
and hence the spirit of LF is a function
of its collective commitment to success.
(6) All the respondents in the case company
are in agreement with the facts that
in today ’ s competitive marketplace,
consumers and businesses have many
choices available to them to solve
personal or business problems. Findings
reported above show that conscious
efforts are made at LF to increase the
fi rm ’ s chances of success by developing
a deep understanding of markets and the
customers within those markets.
LF developed a strategy that is
connected with insight, purpose and
likely future trends. This is in line
with views in extant literature. For
example, Mintzberg et al . 74 suggest that

it is important for managers to analyse
their business strategy and map out
the future directions that need to be
taken against the resources possessed
by the organisation. Strategic analysis
is the examination of the organisation ’ s
objectives and its relationship with the
environment, and an understanding of
its strategic position. The analysis leads
a manager to understand what changes
are going on in the environment and
how they will affect the company; what
the resource strength of the company in
the context of these changes is; what the
aspirations of the people involved —
managers, shareholders or owners,
unions, etc — are; and how these affect
the present position and what could
happen in the future.
(7) Finally, it is shown in this study that
being market oriented is a source of
competitive advantage, and, as such,
organisations should seek to become
market oriented. Similarly, given the
substantial evidence suggesting a positive
relationship between market orientation
and performance, the logical next
question is how a business can best
create and increase a market orientation.
Creating a market orientation is,
however, only a start. Despite the benefi ts
of market orientation outlined earlier,
there are some limitations. For example,
Slater and Narver 52 argue that market-

oriented organisations may not take
enough risks, concentrating on what
Hamel and Prahalad 21 call the ‘ tyranny
of the served market ’ (p. 83), thus
ignoring competitors. It has also been
argued 54,85 that a market orientation
may result in adaptive learning only,
with its focus on the expressed needs,
as opposed to the latent needs of
customers. Moreover, market-oriented
organisations may underestimate the
potential contributions of other learning
sources that possess knowledge useful to
the organisation. 86,87 In short, a narrow
construction of market orientation could
lead to learning only within traditional
boundaries. The above-mentioned
limitations ought to be subjected to
additional scientifi c scrutiny in future
research. Findings from this study may
be regarded as a narrow account of
customer-intimacy business culture of
one company applying a customer-
intimacy philosophy. Consequently, it
is worthwhile for a future researcher to
carry out a quantitative and qualitative
study that aims to outline ways in which
a company might create a customer-
intimacy business philosophy. The
quantitative and qualitative data for such
a study should encompass more than one
Osarenkhoe

company and their customers in order
to verify if the companies are indeed
enacting a successful customer-intimacy
philosophy. Alternatively, a future study
may outline detailed inventory of the
elements of the customer-intimacy
culture .
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Reproduced with permission of the copyright owner. Further
reproduction prohibited without permission.
Customer value-chain involvement for co-creating customer
delight
Mascarenhas, Oswald A;Kesavan, Ram;Bernacchi, Michael
The Journal of Consumer Marketing; 2004; 21, 7; ProQuest
Central
pg. 486

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