How to Select a Business Strategy

by David Aaker



A business strategy has two core elements. The first is the product-market investment decision, which includes the product-market scope of the business strategy, its investment intensity and the resource allocation in a multiple business context. The second core element is the development of a sustainable competitive advantage, which encompasses underlying distinctive competencies or assets, appropriate objectives, functional area policies, and the creation of synergy. A business strategy is usually evaluated in terms of its impact upon sales and profitability objectives. However, it can be difficult to forecast profit streams and risk associated with a strategy. Thus, it is useful to attempt to judge the desirability of strategies more indirectly by considering whether they, (1) are responsive to the external environment, (2) involve a sustainable competitive advantage, (3) relate appropriately to other firm strategies, (4) provide adequate flexibility, (5) are consistent with the business mission and long-term objectives, (6) are organizationally feasible. Such an effort can provide a more comprehensive and accurate evaluation and can help avoid strategic mistakes and lost opportunities.

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