The Evolution of Business Strategy (1960-1970)

Will history repeat itself?

Jan 30, 2024

Strategy has been around for thousands of years, having originated from the need for people to defeat their enemies. In fact, the first written works that explicitly discuss strategy come from China around 400-200 B.C., with Sun Tzu’s The Art of War, written in ~400 B.C., receiving critical acclaim as some of the best work on military strategy.

Business strategy as we know it today however, is far more recent. With its frameworks, models and algorithms, today's business strategy was born in the United States in the 1960s. Since then its inception however, strategy as a field of study has undergone a tremendous evolution.

In this article, we'll be analyzing the evolution of strategy from the 1960s to the late 1970s. The evolution of business strategy from the 1980s-2000s will be published next week.

Prior to the 1960s

Prior to the 1960s, strategy was only taught within "general management" or "business policy courses". Strategic management as a field of study did not exist. The general consensus within business schools at the time was that consistency was a critical condition for firm performance. As such, firms opted for strategies and tactics that ensured consistency.

However, this approach all changed with the introduction of strategy.

Mid 1960s — The Birth of Strategy

Ansoff Matrix

It was only in the mid 1960s that strategy became a subject worthy of independent study. It was Igor Ansoff, a Russian-American mathematician and business manager, who, with the publication of his book Corporate Strategy, coined the term "strategy" for business and established strategy as an autonomous field of study.

In his book, Ansoff presents the Ansoff matrix, a strategic planning framework to analyze and plan strategies for growth. The matrix identifies four broad strategies that can help a firm grow and also analyzes the risk associated with each strategy.

HBS LCAG - Learned, Christensen, Andrews, Guth

Ansoff's book prompted a number of academic and business professionals to develop their own framework and strategic analysis tools for the public to use. The next famous strategic analysis framework to make a wave across managers was that of Harvard Business School professors E.P. Learned, C.R. Christensen, K.R. Andrews and W.D. Guth.

Published in their book Business Policy, the four HBS professors presented the LCAG model, a strategic analysis framework aimed at analyzing external environment factors, internal capabilities, and how the two can be combined to create competitive advantages. The LCAG model is very similar to the ever-popular SWOT model.

HBS Chandler - Strategy and Structure

Alfred D. Chandler Jr. was a Harvard Business School professor who created a series of books in the 1960s — *Strategy & Structure, The Visible Hand and Scale and Scope* — that pioneered a new aspect of strategy: strategy implementation.

Rather than focus on strategy formulation, as the LCAG Model and Ansoff Matrix had done, Chandler focused on strategy implementation with an emphasis on structure. According to Chandler, the strategy determines the structure and environmental changes result in strategic options, which may, in turn, necessitate changes in organizational structure. Chandler believed that strategy could only be implemented with the appropriate business structure. In his words, "structure follows strategy".

Structure Follows Strategy (Elcock, 1996)

1970s — The BCG Models

The BCG Experience Curve

The experience curve is one of the Boston Consulting Group's (BCG) signature concepts and is arguably one of its best known. The experience curve, conceptualized by BCG's founder Bruce Henderson in 1968, postulates that costs follow a definite pattern which is a function of accumulated production experience. A company's unit production costs would fall by a predictable amount — usually around 20-30% in real terms — for each doubling of "experience", or accumulated production volume (BCG).

The experience curve had profound effects on the relatively stable business landscape and infrequent new-product introduction that characterized business in the 1970s. Businesses followed BCG's advice and opted to produce more and leverage the experience curve to formulaically decrease their variable cost below that of their competitors. The idea was that a business could have the optimum combination of all cost elements compared to their competitor's combinations such that they could gain a competitive advantage in cost.

BCG Business Portfolio Matrix

Following the success of the experience curve, BCG developed in the 70s a series of additional models that conceptually derived from the experience curve. Chief among them was the business portfolio matrix, which focused on corporate strategy rather than business strategy (click here to learn about the difference between business and corporate strategy).

While seemingly simple, the business portfolio matrix was a powerful tool to help with long-term strategic planning. Each of the four quadrants represents a specific combination of relative market share and growth.

Low Growth, High Share — companies should invest in these "cash cows" for cash to reinvest
High Growth, High Share — companies should significantly invest in these "stars" for future potential
High Growth, Low Share — companies should invest or discard these "question marks" depending on their chances to become stars
Low Share, Low Growth — Companies should liquidate, divest or reposition these "pets"

The business portfolio matrix instrumental in helping to introduce strategy as an area of thinking and a source of long-term planning.

BCG's insights of the 1970s, derived almost-exclusively from the experience curve, were deterministic in nature. Consequently, a new stream of strategic thinking was introduced in the 1980s as a reaction to BCG's deterministic view of business. To read more on the evolution of strategy from the 1980s to the 2000s, make you are signed up to the newsletter.

No Ordinary Strategy