The art of choosing where to compete and how to win. Every framework here is a different lens on one question: why do some firms make money and others don't?
1The big idea
What strategy actually is
Most people confuse being good at things with strategy. Michael Porter's core insight: they're different.
DefinitionStrategy = deliberately choosing a different set of activities to deliver a unique mix of value. It's about being different, not just better.
Operational effectiveness ≠ strategy
Op. EffectivenessDoing the same activities better/faster than rivals. Everyone copies it eventually → no lasting edge.
StrategyDoing different activities, or the same ones differently. Hard to copy → durable advantage.
Memory hook 🧠"Better is borrowable. Different is defensible." If a rival can simply out-spend you to match it, it was never strategy.
ExampleSouthwest Airlines: didn't try to be a "better" full-service airline — it chose a different activity system (no meals, one plane type, point-to-point). Rivals couldn't copy one piece without breaking their own model.
2Industry analysis
Porter's Five Forces
Asks one question: how attractive (profitable) is this industry? The more intense the five forces, the more profit gets competed away. Strong forces = tough industry.
Five forces squeeze the central rivalry — and squeeze your profit.
New EntrantsHigh when barriers are low (little capital, no patents, easy access). Low when economies of scale or strong brands block newcomers.
SuppliersPowerful when few of them, or you depend on them heavily. They squeeze your input costs.
BuyersPowerful when concentrated, price-sensitive, or can switch easily. They squeeze your prices.
SubstitutesDifferent products solving the same need (e.g. video calls vs flights). Cap how high you can price.
RivalryIntense when many equal-sized rivals, slow growth, high fixed costs, low differentiation → price wars.
Memory hook 🧠"SNoB-RS" → Suppliers, New entrants, Buyers, Rivalry, Substitutes. Or picture 4 arrows pointing inward at a boxing ring.
3Internal + external scan
SWOT Analysis
The simplest map: split everything into internal (you control) vs external (you don't), and helpful vs harmful.
Helpful 👍
Harmful 👎
Internal
StrengthsWhat you do well; assets, brand, skills
WeaknessesGaps, costs, missing capabilities
External
OpportunitiesTrends, new markets, rival missteps
ThreatsNew rivals, regulation, shifting tastes
Memory hook 🧠Top row = inside the building (you can change it). Bottom row = outside the window (you can only react). Left = good, right = bad.
Pro moveSWOT is only useful if it leads to action: match Strengths→Opportunities (attack) and shore up Weaknesses↔Threats (defend).
4Macro environment
PESTEL Analysis
A checklist for the big external forces shaping every industry — feeds the "Opportunities & Threats" half of SWOT.
P · PoliticalGovernment stability, trade policy, tax, tariffs
E · EconomicGrowth, inflation, interest rates, unemployment
S · SocialDemographics, culture, lifestyle, attitudes
T · TechnologicalInnovation, automation, R&D, disruption
E · EnvironmentalClimate, sustainability, resource scarcity
L · LegalRegulation, employment & consumer law, IP
Memory hook 🧠Just spell PESTEL. (UK textbooks) — same as PEST + Environmental + Legal bolted on.
5How to win
Porter's Generic Strategies
Once you know the industry, pick one way to win. Two levers: your advantage (cost vs uniqueness) and your scope (broad market vs narrow niche).
Lower Cost
Differentiation
Broad target
Cost LeadershipBe the cheapest producer at scale (e.g. Walmart, Ryanair)
DifferentiationBe unique & charge a premium (e.g. Apple, Nike)
Narrow target
Cost FocusCheapest in one niche segment
Differentiation FocusUnique for one niche (e.g. Rolls-Royce, Ferrari)
The trap"Stuck in the middle": trying to be both cheapest AND most premium usually means you're neither. Pick a lane and commit.
6Inside the firm
Porter's Value Chain
Breaks the firm into the activities that add value. Find where you create more value (or cost less) than rivals — that's the source of your advantage. The gap between value created and total cost = Margin.
Support activities (top) enable primary activities (bottom). Squeeze cost or boost value anywhere → fatter margin.
Memory hook 🧠Primary activities follow the physical journey of the product: in → make → out → sell → support. Everything else "supports" from above.
7Resource-based view
VRIO Framework
Five Forces looks outward; VRIO looks inward. It tests whether a resource is a real sustainable advantage by asking 4 questions in order. Fail any one → drop down a tier.
Walk left→right. The further a resource gets, the stronger the advantage. Only all 4 = sustained edge.
Memory hook 🧠V-R-I-O = "Very Real Inside Organizations." Each NO drops you one tier down the ladder.
8Portfolio strategy + math
BCG Growth–Share Matrix
For companies with multiple products/units: where to invest cash, and where to milk or kill. Two axes — how fast the market grows, and how dominant you are in it.
Formula · the X-axis
Relative Market Share =
Your market shareLargest rival's share
> 1.0 = you're the leader · < 1.0 = you're a follower. (Y-axis = annual market growth rate %.)
Formula · the Y-axis
Market Growth Rate =
This year's market − last year'sLast year's market size × 100
High growth (often >10%) = top half · low growth = bottom half.
High share
Low share
High growth
⭐ StarsLeaders in fast markets. Invest hard to defend.
❓ Question MarksSmall share, fast market. Invest big or exit.
Low growth
🐄 Cash CowsLeaders in slow markets. Milk for cash to fund stars.
🐶 DogsLow share, slow market. Divest or hold cheap.
The cash flow logicMilk the Cash Cow 🐄 → fund the Question Marks ❓ that can become Stars ⭐ → which mature into tomorrow's Cash Cows. Cut the Dogs 🐶.
9Growth strategy
Ansoff Growth Matrix
Want to grow? There are only 4 directions, and risk rises as you move away from what you know. Axes: products (existing/new) × markets (existing/new).
Existing products
New products
Existing market
Market PenetrationSell more of what you have to who you have. Lowest risk.
Product DevelopmentNew products to existing customers.
New market
Market DevelopmentExisting products to new markets/geographies.
DiversificationNew products + new markets. Highest risk.
Memory hook 🧠Top-left corner = safe & familiar. Each step away = more unknowns = more risk. The diagonal opposite (Diversification) is the leap of faith.
10Beyond competition
Blue Ocean Strategy
Instead of fighting rivals in a bloody "red ocean," create uncontested market space ("blue ocean") where competition is irrelevant. Tool: the ERRC grid — redesign value.
EliminateWhich factors the industry takes for granted should be removed?
ReduceWhich factors should be cut well below the standard?
RaiseWhich should be lifted well above the standard?
CreateWhich factors should be invented that the industry never offered?
ExampleCirque du Soleil: eliminated animals & star performers (costly), raised artistic value, created theatrical themes — a new category between circus and theatre. No direct rival.
The payoffBlue Ocean breaks the usual value–cost trade-off: you raise value and cut cost at the same time, because you stop competing on the old factors.
🎯 Active recall
Don't re-read — test yourself. Cover the answer, say it out loud, then tap to check. Do this today, in 3 days, and in a week.
Why is "operational effectiveness" not a strategy?
Because rivals can copy it — being faster/better at the same activities gives no durable edge. Strategy means doing different activities that are hard to imitate.
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Name the five forces.
Threat of New Entrants, Bargaining power of Suppliers, Bargaining power of Buyers, Threat of Substitutes, Competitive Rivalry. (Hook: 4 arrows pointing at a boxing ring.)
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What does it mean to be "stuck in the middle"?
Trying to pursue both cost leadership AND differentiation at once — usually ends up achieving neither. Pick one generic strategy.
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Write the Relative Market Share formula.
Relative Market Share = Your market share ÷ Largest rival's market share. >1 means you lead the market.
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In BCG, where does cash come FROM and go TO?
Cash comes FROM Cash Cows 🐄 (high share, slow market) and is invested INTO Question Marks ❓ and Stars ⭐. Dogs 🐶 get divested.
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What are the 4 VRIO questions, in order?
Valuable → Rare → Inimitable → Organized to exploit. Only a YES to all four = sustained competitive advantage.
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Which Ansoff quadrant is riskiest, and why?
Diversification — new products in new markets means nothing is familiar, so the most unknowns and highest risk.
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Module 1 of your Strategy course · Re-draw every diagram from memory before moving on. ♟