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WHAT DO WE MEAN BY

STRATEGY ?
What is our present situation?
Business environment and industry conditions
Firms financial and competitive capabilities

Where do we want to go from here?


Creating a vision for the firms future direction

How are we going to get there?


Crafting an action plan that will get us there

WHAT IS STRATEGY ABOUT?


Strategy is all about How:
How to outcompete rivals. (Industry forces,
value chain)
How to respond to economic and market
conditions and growth opportunities.
(External Environments)
How to manage functional pieces of the
business. (Functional strategies)
How to improve the firms financial and
market performance. ( Business strategies)

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. (CA)
Makes competition difficult for rivals.

STRATEGY AND
COMPETITORS
Strategy is about competing
differently from rivals

Doing what they dont do or doing it


better!

Doing what they cant do!

Doing that which sets the firm apart and


attracts customers.

Doing what we should or should not do to


produce a competitive edge.

Identifying a Companys StrategyWhat to Look For

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 firms products or services over
those of its competitors.

STRATEGIC APPROACH
CHOICES
Building Competitive Advantage

Low-cost
provider

Differentiation
on features

Focus on
market niche

Best-cost
provider

STRATEGIC APPROACHES
Building a competitive advantage by:
1. Striving to become the industrys lowcost provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche
markets needs (efficiency and\or
effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).

GAINING SUSTAINABLE
COMPETITIVE ADVANTAGE
How to create a sustainable
competitive advantage:
Develop valuable expertise and
competitive capabilities over the longterm that rivals cannot readily copy,
match or best.
Put the constant quest for sustainable
competitive advantage at center stage
in crafting your strategy.

Why a Firms 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

The Evolving Nature of a Firms


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.

A Companys Strategy Is a Blend of Proactive Initiatives and Reactive


Adjustments

THE RELATIONSHIP BETWEEN


A FIRMS STRATEGY AND ITS
BUSINESS MODEL
Realized
Strategy

$$$?

Business
Model

Competitive
Initiatives

Value
Proposition

Business
Approaches

Profit Formula

A Companys Business Model


How the business will make money :

By providing customers with value.

The firms customer value proposition

By generating revenues sufficient to cover


costs and produce attractive profits.

The firms profit formula

It takes a proven business modelone that


yields appealing profitabilityto demonstrate
viability of a firms strategy.

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.

Business Model Elements (contd)


The Profit Formula
Creating a cost structure that allows for
acceptable profits, given that pricing is
tied to the customer value proposition.
Vthe value provided to customers
Pthe price charged to customers
Cthe firms costs
The lower the costs (C) for a given customer
value proposition (VP), the greater the ability
of the business model to be a moneymaker.

Partner network

Core capabilities

Customer relationship

Value configuration

Cost structure

Value proposition

Distributional channel

Revenue stream

Customer channel

IS OUR STRATEGY A
WINNER?
The Strategic
Fit Test

The Competitive
Advantage Test

Winning
Strategy

The Performance
Test

WHAT MAKES A STRATEGY A


WINNER?
A winning strategy must pass three tests:
The Fit Test
Does it exhibit dynamic fit with the external
and internal aspects of the firms overall
situation?
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 firms profitability, financial and
competitive strengths, and market standing?

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.

Welcome and best wishes for your success!

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 = Good Results!

Nature of Competition- concepts

Strategic Competitiveness
Achieved when a firm formulate & implements a
value-creating strategy
Strategy
Integrated and coordinated set of commitments
and actions designed to exploit core
competencies and gain a competitive advantage
Competitive Advantage (CA)
Implemented strategy that competitors are
unable to duplicate or find too costly to imitate
Above Average Returns
Returns in excess of what investor expects in
comparison to other investments with similar risk

Management and Strategic


Competitiveness
Overview: Eight content areas
Nature of Competition
The Competitive Landscape
I/O Model of Above-Average Returns
(AAR)
Resource-Based Model of AAR
Vision and Mission
Stakeholders
Strategic Leaders
The Strategic Management Process

Nature of Competition:
McDonalds

McDonalds creates value for


customers through:
Business-level strategies

Product Innovation
Upgrading existing restaurants
Listened to customers value menu,
healthier items, more convenience
Purchasing European property for future
expansion

Corporate-level strategies
Disposed of its interests in other restaurants

The Competitive
Landscape
The Competitive Landscape (CL)
Pace of change is rapid
Industry boundaries are blurring
Financial capital is more scarce and markets
are increasingly volatile
Other CL characteristics: Economies of
scale, advertising budgets not as effective as
before, change in managerial mind-set from
traditional to more flexible and innovative

The Competitive Landscape


(Contd)
globalization increased economic
interdependence among countries as
reflected in the flow of goods and
services, financial capital, and
knowledge across country borders
Technology and Technological Changes:
1. Technology diffusion & disruptive technologies
2. The information age
3. Increasing knowledge intensity

The Competitive Landscape


(Contd)

Hypercompetition extremely intense


rivalry among competing firms,
characterized by
Escalating & increasingly aggressive
competitive moves
Assumptions of market stability replaced
with notion of instability and change

Two primary drivers of the competitive


landscape:
The global economy
Technology

The Competitive Landscape


(Contd)

Technology and Technology Changes


(Contd)
Technology diffusion

Perpetual innovation: describes how new


information-intensive technologies are replacing
older forms
Speed to market may be primary competitive
advantage

Disruptive technologies
Technologies that

Destroy value of existing technology


Create new markets

Industrial Organizational (I/O) Model


of
Above-Average Returns (AAR)
Basic Premise to explain the
dominant influence of the external
environment on a firm's strategic
actions and performance

Industrial Organizational (I/O) Model of


Above-Average Returns (AAR)
Underlying Assumptions
External environment imposes pressures
and constraints that determine the
strategies resulting in AAR
Most firms compete within a particular
industry/segment
Control similar strategically relevant resources
Pursue similar strategies in light of those
resources

Industrial Organizational (I/O)


Model of
Above-Average Returns (AAR)

Resources for implementing strategies


are highly mobile across firms
Therefore any resource differences between
firms will be short-lived

Organizational decision makers are


rational and committed to acting in the
firm's best interests, as shown by their
profit-maximizing behaviors

The Resource-Based Model


Basic Premise - a firm's unique
[internal] resources & capabilities, in
combination, are the basis for firm
strategy and AAR
Each firms performance difference
across time emerges (vs industrys
structural characteristics)
Combined uniqueness should define the
firms strategic actions
Resources are tangible and intangible

The Resource-Based Model of


AAR

Resources

Inputs into a firm's production process


Includes capital equipment, employee skills, patents,
high-quality managers, financial condition, etc.

Basis for competitive advantage: When


resources are valuable, rare, costly to imitate
and non substitutable
Internal/firm-specific resources can be classified
into three categories:
Physical
Human
Organizational capital
Relative to the firm itself

The Resource-Based Model of


AAR

Capability

Capacity for a set of resources to perform a


task or activity in an integrative manner

Core Competency
A firms resources and capabilities that serve
as sources of competitive advantage over its
rival

Summary
A firm has superior performance because of
Unique resources and capabilities, and the
combination makes them different, and better,
than their competition driving the competitive
advantage

Vision and Mission


Vision
Picture of what the firm wants to be and, in
broad terms, what it ultimately wants to achieve
An effective vision statement is the
responsibility of the leader who should work
with others to form it
Foundation for the mission

Mission
Specifics business(es) in which firm intends to
compete and customers it intends to serve
More concrete than the vision

The Three Stakeholder Groups

Strategic Leaders

People located in different parts of the firm


using the strategic management process
to help the firm reach its vision and
mission
Decisive and committed to nurturing those
around them
Organizational culture emerges from &
sustained by leaders
Complex set of ideologies, symbols and core values
shared throughout the firm
Affects leaders/their work which in-turn shapes
culture
Influences how the firm conducts business

Strategic Management
Process
Rational approach used by firms to
achieve strategic competitiveness and
earn above-average returns (AAR)
1: Strategic Mgmt Inputs
2: Strategic Actions: Strategy Formulation
3: Strategic Actions: Strategy
Implementation