This is an MIT Sloan Management Review article. The way we think about strategy is woefully incomplete, the authors contend. The traditional idea of focusing on the positioning of products (or services) underplays much of what most would agree makes a company truly competitive. Not only does it give short shrift to what a company knows, it ignores completely the fact that in today's dynamic economy, organizations have to continually reinvent who they are and what they do in large and small ways. And one important means of doing so is through innovation. An effective strategy, then, is comprised of three key components: product/market, knowledge and innovation positions. But even if a company masters the three strategic positions of product/market, knowledge and innovation independently, it is still at risk. Only when all three positions are aligned and mutually reinforcing can a strategy succeed. In adopting the notion of alignment, organizations need to view each position -- product/market, knowledge and innovation -- as aspects of an organization's overall strategy. Creating an integrated strategy thus requires focusing not on each position separately, but rather on all three positions simultaneously. The authors introduce the notion of competing based not only on what an organization makes or the service it provides, but on what it knows and how it innovates. Each aspect represents a competitive position that must be evaluated relative to the capabilities of the organization and to others in the marketplace battling for the same space. And each component must not only be aligned with the other two, but it needs to be adjusted as circumstances warrant. When done correctly, organizations -- such as Buckman Laboratories, which is profiled here -- thrive. When done badly, the company can suffer, and perhaps fatally so, as the history of Polaroid points out.

Today, knowledge is considered the most strategically important resource and learning the most strategically important capability for business organizations. However, many initiatives being undertaken to develop and exploit organizational knowledge are not explicitly linked to or framed by the organization's business strategy. In fact, most knowledge management initiatives are viewed primarily as information systems projects. While many managers intuitively believe that strategic advantage can come from knowing more than competitors, they are unable to explicitly articulate the link between knowledge and strategy. This article provides a framework for making that link and for assessing an organization's competitive position regarding its intellectual resources and capabilities. It recommends that organizations perform a knowledge-based SWOT (strengths, weaknesses, opportunities, and threats) analysis, comparing their knowledge to that of their competitors and to the knowledge required to execute their own strategy.