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Why Firms Succeed
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Why Firms Succeed

Choosing Markets and Challenging Competitors to Add Value

John Kay
Oxford UP, 1995
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Editorial Rating

5

Qualities

  • Comprehensive
  • Applicable
  • For Beginners

Recommendation

Using the approach of an economics business model, John Kay defines the major characteristics firms have used to succeed where others fail. To get on the right side of that fence, he says, work your corporate strengths. Kay maintains that success hinges on distinctive abilities a firm can muster to add value for its particular customers. These unique traits include skills, reputation, and relationships. While the book (and the reader) may choke a bit on the academic charts and examples, real meat is hidden here. On the plus side, Kay writes in a fairly clear, spare style that makes complex ideas easy to follow. On the minus side, he repeats the same basic principles and ideas. While executives might glean some real support for developing their companies’ strengths, getabstract recommends his book primarily to business school academics and to those top-level managers interested in studying and applying theoretical models.

Summary

The Importance of Adding Value

The critical importance of adding value shows up when you compare businesses that fail with those which succeed. Disney, BMW, and Honda succeeded by identifying their distinctive capabilities, selecting the most suitable markets, and creating good competitive strategies to make the best use of their abilities. Even if they did all this unconsciously or belatedly (as in the case of Disney, which languished during the 1980s), they did what they had to do. By contrast, Saatchi & Saatchi undermined its own success by trying to expand beyond its limits in the advertising business. By successfully working its advantages, but in the wrong direction, IBM shot itself in the foot. Big Blue used its strengths to open new markets where its particular distinctive abilities were no longer an advantage. Watch out for that.

To pursue your own effective corporate strategy - to take the first step toward success - understand exactly what your company is distinctively good at doing. Don’t get distracted by what you would like it to be good at; stay real. Then, lead your firm to make "adaptive and opportunistic" use of its distinctive skills and capabilities...

About the Author

John Kay  is a professor of economics at the London Business School, where he has served as a director of the Center for Business Strategy. He wrote Foundations of Corporate Success, which was published in England in 1993. He adapted this book for the American market in Why Firms Succeed.

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