You are on page 1of 30

Concept of Strategy

BS-MMFEBUGM2010

Points to Deliver
Brief history of strategy
Strategic thinking
Meaning of strategy
Choosing strategy
Strategy and Competitive Advantage
Nature of strategy
Strategy and Business Model
Request to a Winning Strategy
Crafting and Executing Strategy

BS-MMFEBUGM2010

A Brief History of Business Strategy

The term strategy derives from the Greek word


strategia, meaning generalship
Its words from stratos, meaning army, and ag, to
lead
However, the concept strategy comes from Sun Tzus
classic: the Art of War
Business strategy shares a number of common
concepts and principles with military strategy
The overall plan for deploying resources to
establish a favorable position
Offensive and defensive strategies
However, both have different purposes
Military: the objective of war is (usually) to defeat
the enemy
Business: seeking coexistence rather than the
destruction of competitors
BS-MMFEBUGM2010

Thinking Strategically:
The Three Big Strategic Questions
1. Whats the companys present situation?
2. Where does the company need to go
from here?
Business(es) to be in and market
positions to stake out
Buyer needs and groups to serve
Direction to head
3. How should it get there?
A companys answer to how
will we get there? is its strategy
BS-MMFEBUGM2010

A Logic Sequence of Thinking Strategically


and What Will Managers to Do

Whats the
companys
present
situation?

To evaluate internal and


external environment of
the company industry
conditions and its
resources strength and
capabilities

Where does
the
company
need to go
from here
(present)?

To push managers
making choices
about the direction
in which the
company is headedmarket, customers,
and products
BS-MMFEBUGM2010

How should
the
company
get there?

To challenge
manager to
craft and
execute
strategy
5

What Do We Mean By Strategy?


Management actions plan for running the
business and conducting operation in
pursuing in the intended direction;
Simply, a strategy means how to achieve
the intended direction (vision and
goals/objectives)
The strategy contains as follows

Managerial commitment on resources to realize the


strategy
Competitive moves which aims to establish
favorable positions in the market (competition )
Business approaches which suit resources strength
and capabilities
BS-MMFEBUGM2010

The Hows That


Define a Firm's Strategy

How to grow the business

How to please customers

How to outcompete rivals

How to manage each functional piece of


the business (R&D, production, marketing,
HR, finance, and so on)

How to respond to changing market


conditions

How to achieve targeted levels of


performance
BS-MMFEBUGM2010

Choosing Strategies for


Companies
With the similar intended directions,
companies would have different strategies
to achieve it.
Simply copying successful companies in
industry and trying to mimic carbon-copy
strategy- their market positions rarely
works.
One company would have different
(distinctive) elements to the strategy
compared with its other companies as it
relates with the differed resources strength

BS-MMFEBUGM2010

Choosing Strategies for Companies: Examples


The Intended Direction

Some Alternative Strategies

To Improve Performance and


Market Position

1. By Achieving Lower Cost


2. By Pursuing Product Superiority
3. By Committing on Personalized
Customer Services
4. By Developing the wide product
lines
5. By Focusing on the only one part of
the industrys chain, such as to be
just in manufacturing or
distributing or retail

To Increase Market Shares

Garuda focuses on excellent


customer services ( premium prices)
whereas AirAsia commits on lower
prices by excluding some services
ground and in flight services
Carefour had acquired some big
retailers, while AlfaMart offers
franchise (waralaba) for individual
retailers BS-MMFEBUGM2010

Choosing the Hows of Strategy

To decide strategic choices about how is


based on
Trial-and-error organizational learning

Managements appetite for taking risks


Managerial analysis and strategic
thinking
Resources strength owned by companies
BS-MMFEBUGM2010

10

Strategy and the Quest for


Competitive Advantage

The heart and soul of any strategy are actions a company


makes to
Improve its financial performance,
Strengthen its competitive position, and
Gain a competitive advantage over rivals
Strategy should derive from the competitive advantage
owned by a company, instead of copying competitors
strategy
(Sustainable) Competitive Advantage
Things that are substantially harder to duplicate and
takes much longer
It will able to maintain or strengthen its competitive
position
BS-MMFEBUGM2010

11

Strategic Approaches to
Building Sustainable Competitive
Advantage
Being

the industrys low-cost


provider/leadership
Incorporate differentiating
features following the varied
segments served
Focusing on a narrow market niche
Developing expertise and resource
strengths
BS-MMFEBUGM2010

12

Competitive Advantage Examples

Strive to be the industrys low-cost provider


Wal-Mart
Southwest Airlines
AirAsia
Outcompete rivals on a key differentiating feature
Mercedes-Benz Engineering design and
performance
Amazon.com Wide selection and
convenience
Toko Buku Gramedia

BS-MMFEBUGM2010

13

Competitive Advantage Examples


(cont)
Focus on a narrow market niche
eBay Online auctions
Starbucks Premium coffees and coffee drinks

Develop expertise, resource strengths, and


capabilities not easily imitated by rivals
FedEx Next-day delivery of small packages
Toyota Sophisticated production system
Sony innovative electronic products

BS-MMFEBUGM2010

14

Starbucks Strategy:
The Key Elements

Expand number of Starbucks stores domestically by


blanketing metropolitan areas, then adding stores on
the citys perimeter
Make Starbucks a global brand by opening stores in an
increasing number of foreign locations
View each store as a billboard for the company and as a
contributor to building the companys brand and image
Broaden in-store products to include coffee-flavored ice
cream, teas, fresh pastries, music CDs, and coffee
accessories
Fully exploit the growing power of the Starbucks name
and brand image with out-of-store sales
Display corporate responsibility and
environmental sustainability
Control costs of opening new stores
Promote customer-friendly service and enhance store
ambience by making Starbucks a great place to work
BS-MMFEBUGM2010

15

For Discussion: Your


Opinion
From your perspective as a consumer, does
Starbucks strategy (described in Illustration
Capsule 1.1) seem to be well-matched to
industry and competitive conditions?
1. Does the strategy seem to be keyed to a
cost advantage, differentiating features,
serving the unique needs of a niche, or
developing resource strengths and
competitive capabilities rivals cant imitate
or trump (or a mixture of these)?
2. What is there about Starbucks strategy
that can lead to sustainable competitive
advantage?
BS-MMFEBUGM2010

16

Identifying a Companys Strategy


Its actions in the marketplace
The statements of senior manages about
the companys current business approaches
and future plans

On annual report
Press releases
Company news (websites)

BS-MMFEBUGM2010

17

Identifying a Companys Strategy

BS-MMFEBUGM2010

18

1-18

Why Do Strategies Evolve?

A companys strategy is a work in progress

A condition that craft strategy is a process,


not a one-time event
Having shaped by management analysis,
and partly by the necessity of adapting and
learning by doing
In responding and anticipating the
continuing changes of environment

Changes may be necessary to react to


Shifting market conditions
Technological breakthroughs
Fresh moves of competitors
Evolving customer preferences
Emerging market opportunities
New ideas to improve strategy
Mounting evidence that the strategy is now working
well
BS-MMFEBUGM2010

19

A Companys Strategy Is Partly Proactive and Partly


Reactive

BS-MMFEBUGM2010

20

Crafting Strategy Is an
Exercise in Entrepreneurship

Strategy-making is a market-driven activity


involving

Studying market trends and competitors


actions
Keen observation of customer needs
Scrutinizing business possibilities based on new
technologies
Building firms market position via acquisitions
or new product introductions
Pursuing ways to strengthen firms competitive
capabilities
Proactively searching out opportunities to

Do new things or
Do existing things in new or better
ways
BS-MMFEBUGM2010

21

What Is a Business
Model?
A business model addresses
How do we make money in this
business?
Simply, how does a company obtain profit?
Or is the business approach committed
profitable?
Or is the strategy capable of delivering good
bottom-line results?

BS-MMFEBUGM2010

22

Relationship between Business Model


and Strategy

A companys strategy
It addresses to its competitive initiatives and
action plan for achieving the intended direction
A companys business model
It zeros in on how and why the business will generate
revenue sufficient to cover costs and produce
attractive profits and return on investment

In connection with both, when a company needs


to pursue strategies for gaining the favorable
position in the market, the company still has to
produces revenue sufficient to cover costs and
profits and help the company achieving the
strategic objectives
BS-MMFEBUGM2010

23

Relationship Between
Strategy and Business Model
Strategy . . .
Deals with a
companys
competitive initiatives
and business
approaches

Business Model . . .
Concerns whether
revenues and costs
flowing from the
strategy demonstrate a
business can be
profitable and viable

BS-MMFEBUGM2010

24

1-24

Examples of Business Models

Magazines and newspaperss business model


Making money on the sufficient subscription and
advertising to cover costs of producing and delivering
products (news)

Gillettes business model


Low prices in selling the razor, but making money on
repeat purchases of razor blades

HP, Lexmark, and Epson


Selling printers at a low (virtually break-even) prices, but
being able to earn profit from the repeat purchases of
printing supplies, especially ink cartridges

Garudas business model


Loyalty to the company is quite high, although the
company keep offering higher ticket prices, but being able
to make money by offering customer services at ground
and in flight services; the customers perceive that values
of experiencing the services are more
than the values of
BS-MMFEBUGM2010

25

Requests to a Winning Strategy


1.

2.

3.

The strategy fits the companys situation


Resource strengths and weakness, competencies
and competitive capabilities
Industry and competitive conditions
The strategy contains elements to the sustainable
competitive advantage
Having been hard to be copy
Relying on distinctive resources
The strategy has to result the improving performance
In terms of profitability and financial performance
In terms of market standing and competitive
strength

BS-MMFEBUGM2010

26

Crafting and Executing Strategy

As mentioned before, the strategy is a vehicle for a company


to reach the intended direction (vision, mission, and
objectives);
Crafting strategy means that managers proactively shape,
revise, and develop how the companys business will be
conducted following current situation and future situation
predicted;
By crafting strategy, the managers wants to improve strategy
quality in respect with to match the companys capabilities
and the competition
Executing strategy means that the company commit and
implement a particular set of actions in pursuing the intended
direction; hence, the management has to build good internal
its environment in ensuring that the strategy can be
implemented.
BS-MMFEBUGM2010

27

Crafting and Executing Strategy

Crafting
Strategy

To develop the
planned actions
in connection
with the intended
direction

Executing
Strategy

The Intended
Direction
(Objectives)

To build a capable
organization and
to run the planned
actions

BS-MMFEBUGM2010

28

Why are Crafting and Executing


Strategy Important?
Both are inseparable managerial tasks
Crafting strategy means that the company
develop the committed action matching
the competition
Executing strategy means that the
company is capable to run the planned
(committed) actions
Both actions are required to achieve the
intended direction (survival and favorable
position in the market)

BS-MMFEBUGM2010

29

Good Strategy + Good Strategy Execution


= Good Management

Crafting and executing strategy are core


management functions

Excellent execution of an excellent


strategy is the
best test of managerial excellence and
the most reliable recipe for winning in the
marketplace

BS-MMFEBUGM2010

30