WHAT IS STRATEGY

AND WHY IS IT IMPORTANT?

Prepared by: Prof. Romy Sebastian, CMS-GNU 1–1

Origin of ‗Strategy‘
 The word ―strategy‖ derives from the
Greek word strategos; which derives from
two words: -
● "stratos" – meaning army.
● "ago" – which is ancient Greek for
leading/guiding/moving.

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 WHAT DO WE MEAN BY STRATEGY ?

♦ A STRATEGY is a plan of action designed

to achieve a particular goal.
♦ An integrated and coordinated set of
commitments and actions designed to
exploit core competencies and gain a
competitive advantage.

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Prepared by: Prof. Romy Sebastian, CMS-GNU

WHAT DO WE MEAN BY STRATEGY ?

♦ The direction and scope of an

organisation over the long term, matching
an organisation‘s activities with the
environment and it‘s resource capability.
♦ The managerial game plan for the future
which is influenced by environmental
forces and resource availability, and the
values and expectations of its
stakeholders
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 Where are we now?
Where would we like to go?
How do we get there?

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WHAT DO WE MEAN BY STRATEGY ?

♦ What is our present situation?

● Business environment and industry conditions
● Firm‘s financial and competitive capabilities
♦ Where do we want to go from here?
● Creating a vision for the firm‘s future direction
♦ How are we going to get there?
● Crafting an action plan that will get us there

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 WHAT IS STRATEGY ABOUT?

♦ Strategy is all about How:

● How to outcompete rivals.
● How to respond to economic and market
conditions and growth opportunities.
● How to manage functional pieces of the
business.
● How to improve the firm‘s financial and
market performance.

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♦ Strategy as Plan – A consciously

intended course of action that is
premeditated and deliberate.
♦ Strategy as Ploy – A specific plan to
outmanoeuvre or outsmart opponents
♦ Strategy as Pattern – A stream of
actions taken by members of an
organisation
♦ Strategy as Position – Focuses on the
organisations position within its
environment
♦ Strategy as Perspective – represents
the mindset of the organisation – its
world view.

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 STRATEGY AND COMPETITORS

♦ Strategy is about competing differently

from rivals—
● Doing what they don‘t do or doing it better.
● Doing what they can‘t do.
● Doing that which sets the firm apart and
attracts customers.
● Doing what we should or should not do to
produce a competitive edge.

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 The Strategy Diamond

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Prepared by: Prof. Romy Sebastian, CMS-GNU

The Strategy Diamond

 Arenas
● Choices made about where to compete: the external
environment such as product or service markets, geographic
markets or channels. Arenas also identify value chain activities
or value creation stages that are insourced or outsourced. For
instance, a pharmaceutical firm may outsource new drug
development to smaller biotech firms.
 Differentiators
● The factors that are believed to allow the firm to "win" in its
targeted arenas, particularly external arenas. Differentiators can
include image, price, reliablity, and other key inputs.
 Vehicles
● The degree to which the strategy relies on internal development
efforts relative to partnering with or acquisition of external
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 The Strategy Diamond

 STAGING & PACING

● The sequence and speed of strategic moves. Helps identify decision
points since strategic moves don't have a single possible pathway.
 For eg, a pharmaceutical firm might grow its global footprint by
first broadening its product arenas then using this foundation to
broaden its geographic market arenas.

 ECONOMIC LOGIC
● How all the pieces tie together in a way that satisfies key stakeholders.
Economic logic for profit-oriented firms can take the form of scale
economies, scope economies, premium pricing or some combination
of these. For non-profit organisations, economic logic reflects how well
the organization is achieving its mission and vision and serving its focal
stakeholders.

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Prepared by: Prof. Romy Sebastian, CMS-GNU

The Quest for Competitive Advantage

♦ Competitive Advantage
● Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, at
lower cost.
♦ Sustainable Competitive Advantage
● Giving buyers lasting reasons to prefer a
firm‘s products or services over those of its
competitors.

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 STRATEGIC APPROACH CHOICES

Building Competitive Advantage

Low-cost Differentiation Focus on Best-cost

provider on features market niche provider

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STRATEGIC APPROACHES

♦ Building a competitive advantage by:

1. Striving to become the industry‘s low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche market‘s
needs (efficiency and\or effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).

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 GAINING SUSTAINABLE COMPETITIVE
ADVANTAGE

♦ How to create a sustainable competitive

advantage:
● Develop valuable expertise and competitive
capabilities over the long-term that rivals
cannot readily copy, match or best.
● Put the constant quest for sustainable
competitive advantage at center stage in
crafting your strategy.

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Why a Firm‘s Strategy Evolves over Time

♦ Managers modify strategy in response to:

● Changing market conditions
● Advancing technology
● Fresh moves of competitors
● Shifting buyer needs
● Emerging market opportunities
● New ideas for improving the strategy

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 The only thing we can guarantee is that
things are going to change

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 The Evolving Nature of a Firm‘s Strategy

♦ Realized (current) strategy is a blend of:

● Proactive (deliberate) strategy elements that
include both continued and new initiatives.
● Reactive (emergent) strategy elements that
are required due to unanticipated competitive
developments and fresh market conditions.

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A Company’s Strategy Is a Blend of Proactive Initiatives and Reactive

Adjustments

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 THE RELATIONSHIP BETWEEN A
FIRM‘S STRATEGY AND ITS
BUSINESS MODEL

Realized Business
Strategy $$$? Model
Competitive Value
Initiatives Proposition

Business
Profit Formula
Approaches

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Prepared by: Prof. Romy Sebastian, CMS-GNU

A Company‘s Business Model

♦ How the business will make money :

● By providing customers with value.
 The firm‘s customer value proposition

● By generating revenues sufficient to cover

costs and produce attractive profits.
 The firm‘s profit formula

It takes a proven business model—one that

yields appealing profitability—to demonstrate
viability of a firm’s strategy.

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 Business Model Elements

♦ The Customer Value Proposition

● Satisfying buyer wants and needs at a price
customers will consider a good value.
 The greater the value provided (V) and
the lower the price (P), the more
attractive the value proposition is to
customers.

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Business Model Elements (cont‘d)

♦ The Profit Formula

● Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition.
 V—the value provided to customers
 P—the price charged to customers
 C—the firm‘s costs
● The lower the costs (C) for a given customer
value proposition (V–P), the greater the ability
of the business model to be a moneymaker.

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 IS OUR STRATEGY A WINNER?

The Strategic
Fit Test

The Competitive Winning The Performance

Advantage Test Test
Strategy

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WHAT MAKES A STRATEGY

A WINNER?

♦ A winning strategy must pass three tests:

● The Fit Test
 How well does the strategy fit the company‘s situation?
 Well matched to industry and competitive conditions, market
opportunities, external environment
 Company‘s resources, strengths, weaknesses, competencies
● The Competitive Advantage Test
 Can it help the firm achieve a significant and sustainable
competitive advantage?
● The Performance Test
 Can it produce good performance as measured by the
firm‘s profitability, financial and competitive strengths, and
market standing?
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 WHY DO STRATEGY ?

♦ A firm does strategy:

● To improve its financial performance.
● To strengthen its competitive position.
● To gain a sustainable competitive.
advantage over its market rivals.
♦ A creative, distinctive strategy:
● Can yield above-average profits.
● Makes competition difficult for rivals.

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Benefits of Strategic Management

 Provide guidance to organization – ―what is it we

are trying to do‖
 Make managers more alert to new opportunities
and threats
 Unify the organization

 Create a more proactive management

 Promote development of a constantly evolving

business model
 Provide a rationale for budgetary allocation

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 WHY CRAFTING AND EXECUTING
STRATEGY ARE IMPORTANT TASKS

♦ Strategy provides:
● A prescription for doing business.
● A road map to competitive advantage.
● A game plan for pleasing customers.
● A formula for attaining long-term standout
marketplace performance.

Good Strategy + Good Strategy Execution =

Good Management
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Prepared by: Prof. Romy Sebastian, CMS-GNU

THE ROAD AHEAD

♦ Strategy is about asking the right questions:

● What must managers do, and do well, to make a
firm a winner in the marketplace?
♦ Strategy requires getting the right answers:
● Good strategic thinking and good management of
the strategy-making, strategy-executing process.
● First-rate capabilities and skills in crafting and
executing strategy are essential to managing
successfully.

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