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Chapter Title
16/e PPT
What Is Strategy
and Why Is
It Important?
Screen graphics created by:
Jana F. Kuzmicki, Ph..
!roy "ni#ersity$F%orida &egion
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc !ll rights reser"e#
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'Without a strategy
the organization is
%ike a ship (ithout a
rudder.)
Joe% &oss and *ichae%
Kami
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Chapter Roadmap

What Do We Mean By Strategy?

Strategy and the Quest for Competitive Advantage

dentifying a Company!s Strategy

Why a Company!s Strategy "vo#ves $ver %ime

A Company!s Strategy s &art#y &roa'tive and &art#y (ea'tive

Strategy and "thi's) &assing the %est of Mora# S'rutiny

%he (e#ationship Bet*een a Company!s Strategy and ts
Business Mode#

What Ma+es a Strategy a Winner?

Why Are Crafting and ",e'uting Strategy mportant?
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Thinking Strategically:
The Three Big Strategic Questions
1. What!s the 'ompany!s present situation?
. Where does the 'ompany need to go from here?

Business.es/ to 0e in and mar+et positions to sta+e out

Buyer needs and groups to serve

Dire'tion to head
!. 1o* shou#d it get there?

A 'ompany!s ans*er to 2ho*
*i## *e get there?3 is its strategy
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"hat #o "e $ean By %Strategy&'

Consists of competitive moves and business
approaches used 0y managers to run the 'ompany

Management!s “action plan” to

5ro* the 0usiness

Attra't and p#ease 'ustomers

Compete su''essfu##y

Condu't operations

A'hieve target #eve#s of
organi6ationa# performan'e
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The (o)s That
#e*ine a +irm,s Strategy

How to gro* the 0usiness

How to p#ease 'ustomers

How to out'ompete riva#s

How to manage ea'h fun'tiona#
pie'e of the 0usiness .(8D9 produ'tion9 mar+eting9
1(9 finan'e9 and so on/

How to respond to 'hanging mar+et 'onditions

How to a'hieve targeted #eve#s of performan'e
Strategy
is HOW
to . . .
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Choosing the %(o)s& o* Strategy

Strategi' 'hoi'es a0out 2ho*3 are 0ased on

%ria#-and-error organi6ationa# #earning a0out *hat has *or+ed and
*hat has not *or+ed

Management!s appetite for ta+ing ris+s

Manageria# ana#ysis and strategi' thin+ing a0out ho* 0est to
pro'eed9 given mar+et 'onditions and the 'ompany!s 'ir'umstan'es

n 'hoosing a strategy9 management is in effe't saying9
%-mong all the many di**erent .usiness approaches and
)ays o* competing )e could ha/e chosen0 )e ha/e
decided to employ this particular com.ination o*
competiti/e and operating approaches in mo/ing the
company in the intended direction0 strengthening its
market position0 and competiti/eness0 and .oosting
per*ormance.&
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1ey 2lements o* a Success*ul Strategy

Deve#oping a su''essfu# strategy hinges on ma+ing
competitive moves aimed at

Appea#ing to 0uyers in *ays to set the enterprise apart from
riva#s and

Carving out its o*n mar+et position

nvo#ves developing a distinctive “aha”
e#ement to

Attra't 'ustomers and

&rodu'e a 'ompetitive edge
Copying competitive moves of other
successful companies rarely works!
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1ey 2lements:
Comcast3s Strategy

Roll out high4speed 5nternet or .road.and ser/ice to customers /ia
ca.le modems

Promote a ne) /ideo4on4demand ser/ice to allo) digital
su.scri.ers to )atch T6 programs )hene/er they )ant

Promote a /ideo4on4demand ser/ice so digital customers can order
and )atch pay4per4/ie) mo/ies

Partner )ith Sony0 $7$0 and others to e8pand mo/ie o**erings

9se 6o5P technology to o**er su.scri.ers 5nternet4.ased phone
ser/ice at a *raction o* the cost charged .y others

9se /ideo4on4demand and C#6 o**erings to com.at mounting
competition *rom satellite T6 pro/iders

2mploy a sales *orce to sell ad/ertising to .usinesses that )ere
shi*ting ad/ertising dollars *rom sponsoring net)ork programs to
sponsoring ca.le programs

Signi*icantly impro/e customer ser/ice
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+or #iscussion: :our ;pinion
>rom your perspe'tive as a 'a0#e or sate##ite servi'e
'onsumer9 does Com'ast!s strategy .as des'ri0ed in
##ustration Capsu#e 1?1/ seem to 0e *e##-mat'hed to
industry and 'ompetitive 'onditions?

Does the strategy seem to 0e +eyed to a 'ost
advantage9 differentiating features9 serving the uni@ue
needs of a ni'he9 or deve#oping resour'e strengths and
'ompetitive 'apa0i#ities riva#s 'an!t imitate or trump .or a
mi,ture of these/?

What is there a0out Com'ast!s strategy that 'an #ead to
sustaina0#e 'ompetitive advantage?
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Strategy and the Quest *or
Competiti/e -d/antage

%he heart and sou# of any strategy are the a'tions
and moves in the mar+etp#a'e that a 'ompany
ma+es to strengthen its 'ompetitive position and
gain a 'ompetitive advantage over riva#s

A 'reative distin'tive strategy that sets a 'ompany
apart from riva#s and yie#ds a 'ompetitive
advantage is a 'ompany!s most re#ia0#e ti'+et to
a0ove average profita0i#ity

Competing with a competitive advantage is more
profitable than competing with no advantage

Competing with a competitive disadvantage nearly
always results in below-average profitability
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- Po)er*ul Strategy <eads to
ustainable Competiti/e -d/antage

A 'ompany a'hieves sustainable competitive advantage
*hen an attra'tive num0er or 0uyers prefer its
produ'tsAservi'es over those of riva#s and *hen the 0asis
for this preferen'e 'an 0e maintained over time

ts ni'e *hen a strategy produ'es a temporary
'ompetitive edge 0ut a dura0#e edge over riva#s great#y
enhan'es a 'ompany!s prospe'ts for *inning in the
mar+etp#a'e and rea#i6ing a0ove-average profits
"hat separates a powerful strategy *rom an ordinary
strategy is management3s a.ility to *orge a series o*
mo/es0 .oth in the marketplace and internally0 that
produces sustainable competitive advantage!
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+our %Best& Strategic -pproaches to
Building Sustaina.le Competiti/e -d/antage

Being the industry!s #o*-'ost provider .a 'ost-0ased
'ompetitive advantage/

n'orporate differentiating features .a 2superior produ't3
type of 'ompetitive advantage +eyed to higher @ua#ity9
0etter performan'e9 *ider se#e'tion9 va#ue-added
servi'es9 or some other attri0ute/

>o'using on a narro* mar+et ni'he .*inning a
'ompetitive edge 0y doing a 0etter Bo0 than riva#s
of serving the needs and preferen'es of
0uyers 'omprising the ni'he/

Deve#oping e,pertise and resour'e
strengths not easi#y imitated or mat'hed 0y riva#s
.a 'apa0i#ities-0ased 'ompetitive advantage/
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Competiti/e -d/antage 28amples

Strive to 0e the industry!s #o*-'ost provider

Wal-!art

outhwest "irlines

$ut'ompete riva#s on a +ey differentiating feature

#ohnson $ #ohnson C (e#ia0i#ity in 0a0y produ'ts

Harley-%avidson C Ding-of-the-road sty#ing

&ole' C %op-of-the-#ine prestige

!ercedes-(en) C "ngineering design and performan'e

*+*+ (ean C 5ood va#ue

"ma)on+com C Wide se#e'tion and 'onvenien'e
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Competiti/e -d/antage 28amples =cont>

>o'us on a narro* mar+et ni'he

e(ay C $n#ine au'tions

#iffy *ube ,nternational C Qui'+ oi# 'hanges

!c"fee C Eirus prote'tion au'tions

tarbucks C &remium 'offees and 'offee drin+s

-he Weather Channel C Ca0#e %E

Deve#op e,pertise9 resour'e strengths9 and
'apa0i#ities not easi#y imitated 0y riva#s

.ed/' C Fe,t-day de#ivery of sma## pa'+ages

Walt %isney C %heme par+ management and fami#y entertainment

-oyota C Sophisti'ated produ'tion system

&it)-Carlton C &ersona#i6ed 'ustomer servi'e
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+ig. 1.1: 5denti*ying a Company3s Strategy
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Test :our 1no)ledge
- company3s strategy and its ?uest *or competiti/e ad/antage
are tightly related .ecause
-. a company3s strategy determines )hether it )ill ha/e lo)er or
higher costs than ri/als and thus .e at a competiti/e ad/antage
or disad/antage.
B. competiti/e ad/antage is essential to ha/ing a pro*ita.le
.usiness model.
C. choosing a competiti/e ad/antage to pursue also helps a
company choose )hich .usiness model is most appropriate.
#. competiti/e ad/antage ena.les a company to achie/e its
strategic o.@ecti/es.
2. a strategy that leads to sustaina.le competiti/e ad/antage is a
company3s most relia.le means o* achie/ing a.o/e4a/erage
pro*ita.ility and *inancial per*ormance.

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"hy #o Strategies 2/ol/e'

A 'ompany!s strategy is a work in
progress

Changes may 0e ne'essary to rea't to

Shifting mar+et 'onditions

%e'hno#ogi'a# 0rea+throughs

>resh moves of 'ompetitors

"vo#ving 'ustomer preferen'es

"merging mar+et opportunities

Fe* ideas to improve strategy

Crisis situations
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+ig. 1.: - Company3s Strategy 5s
Partly Proacti/e and Partly Reacti/e
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Cra*ting Strategy 5s an
28ercise in 2ntrepreneurship

Strategy-ma+ing is a mar+et-driven a'tivity invo#ving

Studying mar+et trends and 'ompetitors! a'tions

Deen o0servation of 'ustomer needs

S'rutini6ing 0usiness possi0i#ities 0ased on ne*
te'hno#ogies

Bui#ding firm!s mar+et position via a'@uisitions or ne*
produ't introdu'tions

&ursuing *ays to strengthen firm!s 'ompetitive
'apa0i#ities

&roa'tive#y sear'hing out opportunities to

Do ne* things or

Do e,isting things in ne* or 0etter *ays
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<inking Strategy "ith 2thics

"thi'a# and mora# standards go 0eyond

&rohi0itions of #a* and the #anguage of 2thou sha#t not3

to issues of

Duty and 2right3 vs? 2*rong3

"thi'a# and mora# standards address
2What is the right thing to do?3

%*o 'riteria of an ethi'a# strategy)

Does not entai# a'tions and 0ehaviors that 'ross the #ine
from 2shou#d do3 to 2shou#d not do3 and 2unsavory3 or
2shady3 and

A##o*s management to fu#fi## its ethi'a# duties to a##
sta+eho#ders
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- +irm3s 2thical
Responsi.ilities to 5ts Stakeholders
Owners0shareholders A Right*ully e8pect some *orm o*
return on their in/estment
/mployees 4 Right*ully e8pect to .e treated )ith dignity
and respect *or de/oting their energies to the enterprise
Customers 4 Right*ully e8pect a seller to pro/ide them
)ith a relia.le0 sa*e product or ser/ice
uppliers 4 Right*ully e8pect to ha/e an e?uita.le
relationship )ith *irms they supply and .e treated *airly
Community 4 Right*ully e8pect .usinesses to .e good
citiBens in their community
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Role o* Senior 28ecuti/es:
<inking Strategy )ith 2thics

>or0id pursuit of ethi'a##y @uestiona0#e 0usiness
opportunities

nsist a## aspe'ts of 'ompany strategy
ref#e't high ethi'a# standards

Ma+e it '#ear a## emp#oyees are
e,pe'ted to a't *ith integrity

nsta## organi6ationa# 'he'+s and 0a#an'es to

Monitor 0ehavior

"nfor'e ethi'a# 'odes of 'ondu't

&rovide guidan'e to emp#oyees in gray areas

Disp#ay genuine 'ommitment to 'ondu't 0usiness
a'tivities ethi'a##y
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Test :our 1no)ledge
- company,s strategy can .e considered %ethical&
-. i* all o* its di**erent actions and elements are legal and in
compliance )ith go/ernmental rules and regulations.
B. so long as its actions and .eha/iors can pass the test o*
%moral scrutiny& and are a.o/e.oard in the sense o* not .eing
shady or unconsciona.le0 in@urious to others0 or unnecessarily
harm*ul to the en/ironment.
C. only i* all elements o* the strategy are in accord )ith )hat is
generally considered as .eing in the o/erall .est interests o*
society at large.
#. so long as religious authorities and noted ethics e8perts *ind
nothing %)rong& in the company3s actions.
2. i* it is in compliance )ith the company3s code o* ethics and has
.een appro/ed .y the company3s chie* ethics o**icer.
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"hat 5s a Business $odel'

A 0usiness mode# addresses “How do we make
money in this business1”

s the strategy 'apa0#e of de#ivering
good 0ottom-#ine resu#ts?

Do the revenue-cost-profit economics
of the strategy ma+e good 0usiness sense?

Goo+ at revenue streams the strategy is e,pe'ted to
produ'e

Goo+ at asso'iated cost structure and potentia# profit
margins

Do resu#ting earnings streams and ($ indi'ate the
strategy ma+es sense and the 'ompany has a via0#e
0usiness mode# for ma+ing money?
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Relationship Bet)een
Strategy and Business $odel
trategy + + +
Dea#s *ith a 'ompany!s
'ompetitive initiatives and
0usiness approa'hes
(usiness !odel + + +
Con'erns *hether revenues
and 'osts f#o*ing from the
strategy demonstrate a
0usiness 'an 0e amp#y
profita0#e and via0#e
S
t
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a
t
e
g
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$icroso*t3s Business $odel
2mploy a cadre o* highly skilled programmers to de/elop proprietary
codeC keep source code hidden *rom users
Sell resulting ;S and so*t)are packages to PC makers and users at
relati/ely attracti/e prices to achie/e a DEF or more market share
$ost costs in de/eloping so*t)are are *i8edC /aria.le costs are smallC
once .reak4e/en /olume is reached0 re/enues *rom additional sales
are almost pure pro*it
Pro/ide modest le/el o* technical support to users at no cost
Re@u/enate re/enues .y periodically introducing ne8t4generation
so*t)are )ith *eatures inducing PC users to upgrade their operating
systems
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Red (at3s Business $odel
Rely on colla.orati/e e**orts o* /olunteer programmers to create the
so*t)are
Collect and test enhancements and ne) applications su.mitted .y
/olunteer programmers *or e/aluation and inclusion in ne) releases
o* <inu8
$arket upgraded and tested *amily o* Red (at products to large
companies0 charging a su.scription *ee that includes G/H support
)ithin 1 hour in H languages
$ake source code open and a/aila.le to all users
CapitaliBe on specialiBed e8pertise re?uired to use <inu8 .y
pro/iding *ee4.ased training0 consulting0 so*t)are customiBation0
and client4directed engineering to <inus users
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Test :our 1no)ledge
The nitty4gritty issue surrounding a company3s .usiness
model is )hether
-. the strategy is capa.le o* producing sustaina.le
competiti/e ad/antage.
B. it matches the company3s e8ternal and internal situation.
C. the chosen strategy makes good .usiness sense *rom a
money4making perspecti/e.
#. the company3s strategy and strategic mo/es are mostly
proacti/e.
2. the company3s strategy stands a really good chance o*
hitting a home4run in the marketplace.
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+or #iscussion: :our ;pinion
Who has the 0est 0usiness mode# C
Mi'rosoft or (ed 1at?
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Tests o* a "inning Strategy

2OO%3/ O. .,- -/-

1o* *e## does strategy fit
the firm!s situation?

CO!4/-,-,5/ "%5"3-"2/ -/-

Does strategy #ead to sustaina0#e
'ompetitive advantage?

4/&.O&!"3C/ -/-

Does strategy 0oost firm performan'e?
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;ther Criteria *or Iudging
the $erits o* a Strategy

nterna# 'onsisten'y and unity among a## pie'es of
the strategy

Degree of ris+ the strategy poses as 'ompared to
a#ternative strategies

Degree to *hi'h the strategy is f#e,i0#e and
adapta0#e to 'hanging 'ir'umstan'es
"hile these criteria are rele/ant0 they seldom o/erride
the importance o* the three tests o* a winning strategy!
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"hy 5s Strategy 5mportant'

A 'ompe##ing need e,ists for managers
to proactively shape how a firm!s
business *i## 0e conducted

A strategy-focused firm is more likely
to 0e a strong bottom-line performer
than one that vie*s strategy as se'ondary
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7ood Strategy J 7ood Strategy 28ecution
K 7ood $anagement

Crafting and e,e'uting strategy are 'ore management
fun'tions

Among a## things managers do9 nothing affe'ts a
'ompany!s u#timate su''ess or fai#ure more
fundamenta##y than ho* *e## its management team

Charts a 'ompany!s dire'tion9

Deve#ops 'ompetitive#y effe'tive strategi' moves and 0usiness
approa'hes9 and

&ursues *hat needs to 0e done interna##y to produ'e good
day-inAday-out strategy e,e'ution
/'cellent e'ecution o* an e8cellent strategy is the
best test of managerial e'cellence A and the
most relia.le recipe *or )inning in the marketplaceL