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A review of theories of competition and business strategy over the last half-century reveals a fairly linear development of early work by academics and consultants into efforts to understand the determinants of industry profitability and competitive position and, more recently, to add a time or historical dimension to the analysis. The possible implications of the emergence of a market for such ideas are also discussed.
"Strategy" is a term that can be traced back to the ancient Greeks, for whom it meant a chief magistrate or a military commander in chief. The use of the term in business, however, dates only to the twentieth century, and its use in a self-consciously competitive context is even more recent.
After providing some historical background, this essay focuses on how the evolution of ideas about business strategy was influenced by competitive thinking in the second half of the twentieth century. The review aims not to be comprehensive but, instead, to focus on some key topical issues in applying competitive thinking to business strategy. Particular attention is paid to the role of three institutions -Harvard Business School and two consulting firms, the Boston Consulting Group and McKinsey & Company-in looking at the historical development and diffusion of theories of business competition and strategy. The essay concludes with some discussion of how the emergence of a market for ideas in this broad domain is likely to affect future developments in this area.
Historical Background
Until the nineteenth century, the scope for applying (imperfectly) competitive thinking to business situations appeared to be limited: intense competition had emerged in many lines of business, but individual firms apparently often lacked the potential to have much of an influence on competitive outcomes. Instead, in most lines of business -- with the exception of a few commodities in which international trade had developed-firms had an incentive to remain small and to employ as little fixed capital as possible. It was in this era that Adam Smith penned his famous description of market forces as an "invisible hand" that was largely beyond the control of individual firms.
The scope for strategy as a way to control market forces and shape the competitive environment started to become clearer in the second half of the nineteenth century....