Should business strategy be built from the outside-in or inside-out?

For many years after business strategy emerged as a discipline in the midst of the 20^th century, it was generally accepted that external analysis identified opportunities and threats, then internal analysis audited internal strengths and weaknesses. A more recent view of strategy that we explore in our “Strategic Thinking and Business Planning” seminar is the resource-based view. This perspective argues that strategic planning should be largely based on the resource capabilities of your organization, to limit the external analysis to relevant areas only. For example, if Samsung identified a new opportunity for OLED technology they would have the resources to exploit it, whereas they would be unlikely to succeed in developing a new drug, or meeting a requirement for publishing children’s books!

There is a risk that speculative opportunities might be missed, but thorough external strategic analysis takes a lot of time and effort, so concentrating your resources on the most relevant areas can be a sensible approach.

The three broad approaches to improving competitive advantage from this inside-out perspective are:

• Benchmarking – choose a competitor who is better than you in some aspect of the market; measure the gap and then bridge it
• Leveraging – use what you have got to open new market opportunities; for example: Apple Computer identified that an MP3 player is basically a hard drive with some simple software and that their design flare and fast connectivity built into their machines allowed them to launch a market leading product relatively quickly and easily: the iPod
• Upgrading – replacing outdated or noncompetitive plant or other capital items; training and developing people, etc.

Resources are developed and destroyed over time based on their ability to add sustainable competitive advantage and to increase added value. Evaluating the resources you have can be done by asking questions such as:

• What technology do we have?
• Do we have unique competencies that are better than our competitors?
• What links are there between our products & services that could lead to integrated solutions?
• How do we generate added value?
• What new skills, resources or competencies do we need?

Once you have a focused set of options, you can then move-on to broader questions such as:

• How is the environment changing?
• What are our competitors doing?

The purpose of this inside-out, resource-based, view of strategy is to identify key resources that need to be developed in order to maintain competitiveness or move ahead in some way without making more fundamental changes to the business model.