Wheel of Competitive Strategy
A framework for articulating a firm's competitive strategy
The Wheel of Competitive Strategy is a framework for articulating a firm's competitive strategy. It consists of a hub representing the firm's goals and spokes representing the key operating policies. The framework helps managers to develop a broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals.
- A firm's competitive strategy is a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.
- The key operating policies should radiate from and reflect the firm's goals.
- The key operating policies should be connected with each other to ensure a cohesive strategy.
- Define the Firm's GoalsThe firm's goals should be defined in terms of its broad definition of how it wants to compete and its specific economic and noneconomic objectives.Pro tipThe goals should be specific, measurable, achievable, relevant, and time-bound (SMART).WarningThe goals should not be too broad or too narrow, and should be aligned with the firm's overall mission and vision.
- Identify the Key Operating PoliciesThe key operating policies should be identified in terms of the firm's functional areas, such as marketing, finance, and human resources.Pro tipThe policies should be aligned with the firm's goals and should be designed to achieve those goals.WarningThe policies should not be too rigid or too flexible, and should be subject to regular review and revision.
- Test the Consistency of the StrategyThe consistency of the strategy should be tested in terms of internal consistency, environmental fit, resource fit, and communication and implementation.Pro tipThe tests should be conducted regularly to ensure that the strategy remains relevant and effective.WarningThe tests should not be too simplistic or too complex, and should be designed to identify potential weaknesses and areas for improvement.
A company uses the Wheel of Competitive Strategy to develop a new business strategy. The company defines its goals in terms of increasing market share and improving profitability. The company identifies its key operating policies in terms of marketing, finance, and human resources, and tests the consistency of the strategy using the tests outlined in Figure 1-3.
The Wheel of Competitive Strategy was developed by Michael E. Porter as a tool for managers to develop a competitive strategy. It is based on the idea that a firm's competitive strategy is a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.