Business strategy involves an integrated set of actions designed to help companies gain sustainable advantage over competitors. The business system is a framework that allows a company to formulate the set of actions most likely to achieve this advantage. First introduced in a McKinsey staff paper in 1980,1 the business system was later presented to the public by McKinsey’s Fred Gluck,2 who stressed its usefulness in forming strategy. In 1985, Harvard’s Michael Porter introduced a similar framework—the value chain—and cited the business system concept in the book Competitive Advantage.3
The business system charts all the steps involved in creating and delivering a company’s product. At each link in the chain, from product development to sales and service, managers have a choice of how to conduct business. From a strategic point of view, the most important assessment is how the choices made at each step reinforce the company’s overall value proposition and, hence, its competitive advantage. The word system in business system emphasizes the importance of aligning conduct at every step with the value proposition.
Enduring Ideas: The business system
A narrated interactive explores this classic strategy framework.
To develop improvements to...