What is Strategy and Why is it Important?

(Part 2)

Main Topics:

 STRATEGY IN THE 21ST CENTURY

 STAKEHOLDERS
 THE AFI STRATEGY FRAMEWORK

STRATEGY IN THE 21st CENTURY

Change is the only constant –and the rate if change appears to be increasing. Managers today face an
increasingly competitive world and truly global marketplace. Hence, we expand the impact of these key
trends such as Accelerating Technological Change, A Truly Global World and Future Industries that will
dramatically affect how to formulate and implement an effective strategy in the 21 st century.

Key Trends:

1. Accelerating Technological Change

 84 years for half of U.S. families to own a car

 28 years for half to own a TV
 6 years for an MP3 player

Gen- Y or The Millennials

 Born from 1981-1996
 sometimes called “digital natives”
 digital natives are people who grew up with the Internet and other advanced
technologies and who need NO help adapt to new technologies.

Example: Emergence of smart phones and the internet

• Digital Immigrants – who did not grow up with the Internet and other advanced technologies so
have taken longer to adopt to them. They are usually the Gen X or older generation.

What factors explain rapid technological diffusion and adoption?

 Initial innovation like car, airplane, telephone and use of electricity provided the necessary
infrastructure few newer innovations to diffuse more rapidly.
 Emergence of new business models that make innovations more accessible.

Example: car accessories, satellite and cable distribution systems that facilitate the mass media such as
tv and radio, emergence of the internet and social networking sites.
 2. A Truly Global World

• The book entitled “The World Is Flat” by Thomas Friedman

o Describes a truly global marketplace in which goods, services, capital, knowledge,
ideas and people move freely across geographic boundaries in search of greater
opportunities.
• “Bottom of the pyramid” can yield business opportunities
o Largest group of consumers but living at the bottom or poorest of the global
economic or wealth pyramid
o 4 billion people earning $5.50 a day only
o Example: Business opportunities such as micro credit or providing small loans to the
poor. The selling of Nano Car as the world’s lowest price or cheapest car in the world.
• The technology giant IBM employs 425,000 people and has revenues of roughly $100 billion.
o IBM is headquartered in NY, USA however more than 70% of its employees are
working outside the US. Roughly 2/3 of the revenue are coming from outside US.
They are planning to reduce headcount in US and expand or increase employment in
some other countries such as India.

3. Future Industries ->industries that seem likely to provide good future opportunities

 HEALTH CARE
 In the U.S., spent over 16% of total economic activity in 2010
 Estimated to increase to 20% by 2019 making this as the largest industry in the country
 This increases the demand for doctors, nurses and other healthcare personnel’s

 GREEN ECONOMY
 Describes future business opportunities in renewable energy, energy conservation and
efficient energy use
Example: recycling, use of solar, wind and hydro-electric dams, use of energy efficient
modern home appliances and LED light bulbs

 WEB 2.0
 Interactivity and using collective intelligence with web users on the Internet
 Encourages web users to participate, collaborate and info-sharing
Example: Amazon, Facebook, YouTube

STAKEHOLDERS

• Organizations, groups, and individuals

• They can affect or are affected by the actions of the firm
• They have a claim or interest in the performance and continued survival of the firm
The firm is embedded in an exchange relationship with internal and external stakeholders.

Exhibit 1.8 Internal and External Stakeholders in an Exchange Relationship with the Firm

Example: Employees contribute skills and expertise so in turn they get salary increase and bonus
Stockholders contribute money and capital so in turn they get dividends

Value Creation for Society

• Companies with good strategy generate value for society.

– Firms compete in their own self-interest.
– Firms obeying the law and acting ethically

• Companies with a good strategy:

– Provide products or services to consumers at an affordable price
– Make a profit
– Benefit both parties
– Make society better

• Successful companies create value for the economy:

– Education, public safety, and health care
– Superior performance allows a firm to reinvest some of its profits for growth
– More opportunities for employment

• Example: Google
– Employs 55,000 people
– People rely on Google for information
The AFI Strategy Framework

• AFI: A model that links three interdependent strategic management tasks

– (A)nalyze
– (F)ormulate
– (I)mplement

• Analysis
– Diagnosis of the competitive challenge
• Formulation
– Guiding policy to address the competitive challenge
• Implementation
– A set of coherent actions to implement the firm’s guiding policy

• This model help managers plan and implement a strategy that can
– Improve performance
– Result in competitive advantage.
• Each of these tasks are interdependent.
• Each of these tasks frequently happen simultaneously.

Exhibit 1.9 The AFI Strategy Framework

Strategy Analysis (A) Topics and Questions

• The strategic management process:

– What are our vision, mission and values? What is our process for “making” strategy?
(Chapter 2)
• External analysis:
– What effects do forces in the external environment have on strategy and competitive
advantage? (Chapter 3)
• Internal analysis:

– What effects do our internal resources and capabilities have on strategy and competitive
advantage?(Chapter 4)

• Firm performance:
– How can we measure competitive advantage? (Chapter 5)

Strategy Formulation (F) Topics and Questions

• Business strategy:
– How should we compete? (Chapters 6 and 7)
• Corporate strategy:
– Where should we compete? (Chapters 8 and 9)
• Global strategy:
– Where and how should we compete around the world? (Chapter 10)

Strategy Implementation (I) Topics and Questions

• Organizational design:
– How should we organize to put the formulated strategy into practice? (Chapter 11)
• Corporate governance, business ethics and strategic leadership:
– What type of strategic leadership and corporate governance do we need? How do we
anchor our decision in business ethics? (Chapter 12)